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Double Or Quits With LGO Energy PLC & BowLeven PLC?

LGO Energy (LSE: LGO) and BowLeven (LSE: BLVN) are rising, with their shares up 9% and 5%, respectively, at the time of writing. Their recent performances are encouraging, too — but which one should you choose to if you want to make a bundle?

Is LGO The One?

There hasn’t been anything major to report since 30 April, when LGO issued its latest “Goudron Drilling and Field Update“, which didn’t add much to the investment case. 

The shares have appreciated by about 20% since, and investors are seemingly attracted to LGO ahead of its trading update for 2014, which is expected at the end of May. No news would be bad news this time around, and that’s a risk that would-be investors ought to consider. Moreover, trading volumes remain rather low. 

The stock is in recovery mode, but is still down 33% on the year to date. What appears certain is that if concrete, positive news about its Goudron field in Trinidad emerges in the next few quarters, LGO could almost certainly end the year in positive territory. After all, LGO has funding options, although one of the biggest mid-term risks into 2016/2017 is represented by dilution risk — LGO may have to turn to its shareholders to raise fresh funds if findings at its Goudron field do not meet expectations. 

What You’d Be Buying

There’s time, though.

It’s worth considering that even though LGO had accumulated losses of £25m on revenues of £17m between 2009 and 2013, in the first quarter it announced that its subsidiary Goudron E&P Limited had managed to raise a $25m pre-paid oil swap facility via BNP Paribas. 

If you invest now at 2.87p a share, where LGO currently trades, you should consider that it traded above 6p at around the end of September. That post-crisis record valuation came only a few days before LGO reported a trading update, according to which “Goudron would remain its focus in 2014,” while “other elements” of its portfolio had “significant untapped potential”.

In fairness, not many elements have pointed to rapid growth and meaningful progress since, I’d argue. For the record, LGO hit a 52-week low of 1.02p on 15 May 2014.

BowLeven Has Cash To Spend

BowLeven’s equity valuation is up 17% since the 2015 trough that it hit in January. The shares are flat for the year so far, though, and according to their current valuation of 31p, BowLeven’s market cap stands at £100m, for an implied enterprise value of less than £40m, which signals a strong net cash position. 

When BowLeven completed the Etinde farm-out transaction with Lukoil/New Age earlier this year — a deal that related to the sale of part of its interests in the Etinde Permit, offshore Cameroon — the aggregate total consideration it fetched to give up control in the development was about $250m, and comprised initial cash proceeds of $165m, which were received on 16 March 2015. 

Even assuming that Bowleven’s cash pile has fallen since, at today’s price of about 30p a share you’d be buying the stock for roughly the value of its gross cash position. Only a few analysts cover the shares, but consensus is that BowLeven could double, and I find some merits in such a view.

Considering all these elements, risk could be minimised by investing your hard-earned savings in another premium small-cap that: a) belongs to a different league; b) is more defensive than LGO and BowLeven; c) and whose track record, financials, cash flows and current/forward valuation point to plenty of value right now.

The name of one of our top picks in the small-cap world can be found here, in research that is completely FREE only for a limited amount of time. 

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Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.