Hurricane Energy plc isn’t the only small-cap with huge potential

G A Chester discusses Hurricane Energy plc (LON:HUR) and another small-cap that could be a big winner for investors today.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In a trading update today, chief executive Richard Tyson said he’s “excited about the prospects” for TT Electronics (LSE: TTG). I have to say I am too, as I see huge potential for investors in this global provider of engineered electronics for performance critical applications.

Evolve and prosper

The company completed the sale of the largest of its four divisions last month. Following the disposal, as management rightly says, “TT will be a higher margin, higher quality business, more balanced across markets and geographies and with increased financial capacity to accelerate growth through capital investments and acquisitions.”

In today’s update, it reported “strong growth” in the continuing businesses, with like-for-like revenue up 6% and the order book across all three divisions continuing to be “strongly ahead” of the prior year. Despite the loss of the disposed division’s revenue and profit, I calculate little change in group earnings, assuming an elimination of finance costs (the company has moved to a net cash position) and lower tax (due to the change in geographical mix).

TT’s share price is little moved following today’s update and at 216p this FTSE SmallCap firm is valued at £350m. With net cash of over £50m, I put its cash-adjusted forward earnings multiple at around 15 and see the stock as very buyable at the current level.

Exciting oil play

Another stock I see as having huge potential is AIM-listed Hurricane Energy (LSE: HUR), which has a market cap of £524m at a current share price of 26.75p. This oil play has 37m barrels of 2P reserves at its Lancaster field and 760-786m barrels of 2C contingent resources across all its fields/prospects — and there’s potential for these numbers to increase by a large amount.

Impressively, for an AIM oiler with no currently producing assets, Hurricane has retained 100% ownership of its licences. This has meant rounds of dilution for shareholders, the latest being a $520m fundraising in June, which included $300m ordinary shares at 32p and the remainder in convertible bonds.

However, retaining full ownership of its licences will reap bigger rewards in the longer term and, for new investors, I believe now could be a great time to buy a slice of the business. The reason is because the fundraising means Hurricane is funded for an Early Production System at its Lancaster field, for which its was given consent in September. First oil is targeted for H1 2019 and planned production is 17,000 barrels a day. This would provide revenue to fund the move to full production. So, if all goes to plan, new investors today shouldn’t experience the level of dilution seen in the past.

Some commentators are deeply sceptical about this. But with Hurricane having the potential to become a major player in the West of Shetland region and also now looking to move from London’s junior AIM market to a premium listing, the risk/reward proposition here leads me to rate the stock a ‘buy’.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any of the 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.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »