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Are Poundland Group plc, Faroe Petroleum plc and Xcite Energy Limited must-buy stocks after today’s news?

Shares in Poundland Group (LSE: PLND) edged higher this morning, despite the firm reporting a 3.9% fall in like-for-like sales for the year to 29 March. This pushed underlying earnings per share down by 10.8% to 11.7p.

Poundland’s uncertain results are likely to get an easy ride today, given yesterday’s news that South African group Steinhoff is considering a cash bid for the firm. However, I imagine Steinhoff’s analysts will be taking a very close look at the results.

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In my view, the outlook is fairly positive. Although Poundland shares look superficially expensive on an underlying P/E of 17.5, cash generation and profits should improve significantly this year.

Poundland expects capital expenditure to fall from about £45m last year to £25m in 2016/17, now that the conversion of the 99p Stores acquisition has been completed. Sales are also rising strongly — revenue rose by 19% to £1,326m last year.

I suspect any offer from Steinhoff will be at a reasonable premium to the current share price of 205p, so in my view shareholders should hold on.

A bargain oil stock?

Shares in Norwegian North Sea specialist Faroe Petroleum (LSE: FPM) rose by 7% this morning, after the firm announced an oil and gas discovery at its Brasse exploration well.

Faroe said that the well found an 18 metre gas-bearing interval and a 21 metre oil-bearing interval. The firm is now drilling a sidetrack well to confirm the extent of the discovery. A successful sidetrack could help confirm the commerciality of this discovery.

Faroe flies under the radar of many oil and gas investors, but I believe this stock could deliver significant further gains. After recovering strongly earlier this year, Faroe shares have fallen back from a high of 92p to just 66p. The firm has production of around 10,500 boepd with an average operating cost per barrel of just $23. Faroe also has no debt and had net cash of £68m at the end of 2015.

In my view, this could be a good stock to buy and tuck away for a year or two.

Sell before it’s too late?

Unfortunately the outlook is much grimmer for shareholders of Faroe’s North Sea peer, Xcite Energy Limited (LSE: XEL).

Xcite shares fell by 19% after the firm issued a statement this morning making it very clear that existing shareholders are likely to face further losses. It’s been clear for some time that Xcite would be unable to meet scheduled debt repayments of $139m at the end of June.

Today’s statement confirms that a meeting of the firm’s bondholders has been called for June 30. Xcite says it has already been in discussions with the bondholders regarding restructuring options. It’s clear that Xcite hasn’t been able to find a buyer or partner for its Bentley field. The firm says that “it is likely” that Xcite’s refinancing will involve swapping a portion of the bonds for new shares in the company.

As the amount outstanding on the bonds ($139m) is much greater than the current market cap (about $41m), I believe significant dilution is likely for existing shareholders. I’d expect the new shares to be issued in large numbers at a much lower price than the current value of 9p.

In my view, Xcite remains a strong sell.

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Roland Head 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.