The Motley Fool

3 Smashing Small-Caps? Sirius Minerals PLC, Rockhopper Exploration Plc And Vertu Motors Plc

With the outlook for the oil industry being rather downbeat, now could be an opportune moment to buy companies operating in the sector. One potential purchase is Rockhopper Exploration (LSE: RKH), which has enjoyed a relatively positive 2015 thus far with regard to its operational performance.

Impressive results

Notably, its joint venture in the Falkland Islands basin has produced impressive results, with the two wells that have already been drilled indicating that the region boasts long term production potential. And, with the oil price falling and costs across the industry coming under pressure, exploration companies such as Rockhopper could benefit from falling costs in future months. In fact, should the oil price recover in the coming years, Rockhopper may benefit from initial low costs in its exploration phase and a higher sales price in its production phase over the medium to long term.

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While Rockhopper has experienced disappointment this year — for example the failure to complete its proposed purchase of a stake in the Abu Sennan concession in Egypt — its recent results showed that it remains on track with its long term plans.

Furthermore, the fact that it is aiming to increase its asset base at the present time indicates that its management team is relatively confident in the company’s financial strength, with the deal in Egypt only falling through due to one of the joint venture parties using its right of pre-emption to end the negotiations. And, with it having multiple assets with production potential, it seems to be a sound buy for investors seeking out a small-cap oil exploration play.

Very appealing

Similarly, Vertu Motors (LSE: VTU) appears to be a strong buy at the present time, with its earnings forecasts being very upbeat. For example, in the next two years it is expected to grow its bottom line by 6% and 13% respectively, which puts it on a forward price to earnings (P/E) ratio of just 11. This indicates that there is considerable upside potential to follow on from the 150% gains made by Vertu’s share price in the last five years.

Furthermore, Vertu could become a very appealing income play. It may only yield 1.9% at the present time but, with it having a payout ratio of just 24%, there is scope for a significant rise in dividends over the medium term – especially since its bottom line is set to continue the double digit rise of the last two years.

Potential hazards

Meanwhile, Sirius Minerals (LSE: SXX) remains a high risk, but potentially highly rewarding, investment. While it has huge potential to become a major potash miner, following its receiving initial planning approval for its proposed mine in Yorkshire, there are a number of potential hazards likely to feature along the way for the company and for its investors.

Chief among them is the issue of financing. Sirius Minerals will require up to £2bn of capital to build the mine and while crop studies have shown that the company’s polyhalite fertiliser is highly effective, the deals signed with a number of potential customers cannot be fulfilled until the mine gets the go-ahead and is built.

With this week set to see the final decision on the future of the mine by the North York Moors National Park Authority, shares in Sirius Minerals may be volatile in the near term. As such, it may be best to await confirmation before buying a slice of the business.

Under the radar

Of course, there are a number of other small-cap stocks that could be worth buying right now and, with that in mind, the analysts at The Motley Fool have written a free and without obligation guide called 1 Top Small-Cap Stock From The Motley Fool.

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Peter Stephens owns shares of Vertu Motors. 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.