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Is it too late to buy IGAS Energy plc shares after doubling in 4 months?

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A number of stocks have posted gains well ahead of the high-flying broader market in recent months. UK onshore oil and gas specialist Igas Energy (LSE: IGAS), whose shares have almost doubled since September, is one such company. Spreadbetting firm IG Group (LSE: IGG), which released its half-year results today, is another.

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Responding to regulation

IG Group’s shares are little changed at 785p following today’s results, having enjoyed a strong run-up from 650p since a pre-close trading update on 5 December. In fact, this has been part of a longer rise since December 2016 when the threat of tighter regulatory controls initially caused a major share price crash for IG and its rivals.

Several announcements by regulators have caused some short-term volatility in the shares but the broad upward trajectory has continued. As the industry leader, FTSE 250 firm IG is well placed to pre-empt or adapt to new regulations. For example, it was able to respond to a recent fairly damning review of part of the contracts for difference market by the Financial Conduct Authority (FCA) with the statement: “IG believes that it complies with the applicable rules and FCA guidance and that this review has no new financial implications for IG’s business.”

Highly attractive valuation

Increased regulation could actually benefit the big players in the long run and IG’s half-year results today showed the business continuing to progress, with record revenue and profit for the period. City forecasts for the company’s financial year ending 31 May project earnings growth of over 13% to 52.4p a share, giving a price-to-earnings (P/E) ratio of 15. There’s also a very nice 4.6% yield from a forecast 36.3p dividend.

IG’s earnings multiple and yield strike me as highly attractive for an industry leader, which is also broadening its client base through the development of new products and services, and through the establishment of operations in new geographies. For these reasons, I rate the stock a ‘buy’.

Very buyable?

AIM-listed Igas Energy faced gale-force headwinds as a result of its high level of debt and the oil price crash of 2014. Indeed, so severe were these that, ultimately, the company’s very existence was threatened. A massive financial restructuring crushed existing shareholders but at least enabled the company to survive.

I turned bullish on Igas in June after its refinancing. I noted its transformed financial footing — net debt of $8m, compared with $122m pre-refinancing — and that the company was cash flow generative at the prevailing oil price. Also, that its shale development plan was well funded by its partners with a carried work programme of up to $230m.

Since then, it has released its half-year results and the price of oil has continued to recover (reaching over $70 a barrel recently). Management said that in addition to the carried work programme on its shale acreage, it now has capital to deploy in incremental growth projects across its conventional assets. It expects the latter to underpin increased production to 2,500 barrels of oil equivalent per day and operating costs of $25 a barrel in the medium term. As such, the shares of ‘New Igas’ continue to look very buyable to my eye.

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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.

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