One value stock I’d always buy over Ophir Energy plc

Ophir Energy (LSE: OPHR) has managed to arrest the recent collapse in its share price, the stock rising 2% in Wednesday trade following the release of its latest operational and trading update.

The fossil fuel giant announced further plans to get to grips with its cost base. It will halve the number of corporate positions in London and abroad, it said, measures which will reduce its global workforce by 15% and create annual cost savings of between $10m and $12m.

The move has been made “to further reduce the company’s underlying cost base in recognition of limited signs of an oil price recovery, and of lower exploration activity,” Ophir Energy said. Last week, the company announced the departure of chief operating officer Dr William Higgs as it grapples with reducing outgoings.

In other news, Ophir Energy announced that production averaged 11,300 barrels of oil equivalent per day during January-June, falling short of its target of 12,500 barrels, citing production problems at its Sinphuhorm and Kerendan gas fields.

Consequently, the London-based driller has scaled back its full-year output guidance to 12,000 barrels per day.

Murky outlook

Ophir Energy’s frantic efforts to reduce costs has seen investors flock to the exits in recent weeks. The firm’s stock value has fallen by more than a quarter so far in 2017, and sunk to eight-month troughs of around 70p per share just this week.

And it is little wonder as concerns over whether the company can continue to fund its expensive exploration projects, like the Fortuna LNG project off the coast of Equitorial Guinea, in the current climate. The driller is being hit by a declining oil price as the supply glut worsens, and its rapidly-shrinking cash reserves are a further concern: net cash slumped to $160m at the close of last year, from $355m a year earlier.

The number crunchers expect Ophir Energy to bounce back into the black this year, to punch pre-tax profits of £3.1m. And profits are expected to explode to £26.8m in 2018.

But these forecasts could be subject to hefty downgrades should the recent retracement in crude values continue, a very real possibility as US shale producers return to the pumps with gusto. So I reckon Ophir Energy is a risk too far right now.

Paper tiger

Those looking for stocks with smart earnings potential need to look at Smurfit Kappa (LSE: SKG), even though recent earnings weakness is expected to continue for a little while yet. City brokers currently expect Smurfit Kappa to follow last year’s 4% bottom-line reverse with a 7% fall in 2017.

However, the Irish packager is predicted to get profits chugging higher again from next year, a 9% bounceback is estimated for 2018 as containerboard prices steadily increase. And earnings should continue to grow as industry supply fails to keep up with demand.

Current forecasts mean the FTSE 100 giant deals on a forward P/E ratio of just 13.6 times. And Smurfit Kappa, unlike Ophir Energy, offers the handy bonus of a chunky dividend. For 2017 a payment of 80.5 euro cents per share is anticipated, yielding 3%. And the yield moves to 3.2% next year thanks to predictions of an 84.7-cent dividend.

I reckon the packaging powerhouse is worthy of serious attention at current prices.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.