Why Vedanta Resources plc And Victoria Oil & Gas plc Are Soaring

Under pressure

Shares in diversified resources company Vedanta (LSE: VED) have soared by as much as 10% today after the release of its third quarter results. Despite net profit falling by almost 99% versus the same quarter of the previous year, the company’s results were better than expected, given that  it was due to post a loss for the quarter.

Clearly, a huge fall in profit is still a major concern for the company’s investors and, looking ahead, its profitability could come under further pressure due to the potential for further falls in the prices of commodities such as aluminium and copper. However, with Vedanta seemingly having adopted the right strategy to combat the negative external factors it faces, its financial performance could be stronger than previously thought.

For example, Vedanta has slashed costs and reduced overall expenditure by 12% in the last quarter and, with a number of its cost saving initiatives having not yet been fully implemented, there is scope for a further reduction in costs over the medium term. Furthermore, the company expects commodity prices to recover in 2017 following a period of consolidation and this could be the catalyst to push the company’s share price considerably higher after its fall of 40% in the last year.

With Vedanta trading on a price to book value (P/B) ratio of just 0.1, it appears to offer a hugely enticing opportunity for capital growth. Certainly, there is scope for losses further down the line if commodity prices fall further or there are asset writedowns. However, for less risk averse investors who are able to take a long term view, Vedanta could be worth a closer look.

Relatively strong

Also making major gains today is Victoria Oil & Gas (LSE: VOG). Its shares are up by over 10% today after it released an operations outlook for 2016. Notably, among its key objectives is an aim to increase gas supply to customers by 30% versus 2015 levels. This would be an impressive achievement since Victoria reported that its 2015 production was more than double that of 2014, with the company becoming cash generative in the process.

The company also aims to successfully complete a two well-drilling programme for the expansion of gas reserves this year as it seeks to also reduce costs during what is a challenging time for the wider oil and gas industry. And with Victoria having protected its customer base and maintained its gas prices at $9 to $16 per million British Thermal Units (MMBTU) in 2015, its financial outlook appears to be in a relatively strong position. In fact, it is seeking to take advantage of low asset prices by making acquisitions.

While Victoria remains a small and high risk stock which trades in a highly volatile industry, less risk-averse investors may be prepared to invest at the current price level. However, with much larger oil and gas plays still being profitable and offering good value for money, there are many other desirable options elsewhere.

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Peter Stephens 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.