One play on this trend is the AIM-traded producer of nutrition, breeding and health products for the global aquaculture industry Benchmark (LSE: BMK).

Building for the future 

For the past two decades, Benchmark has been in investment mode, spending heavily to increase its global footprint and re-investing all of the cash generated from its fledgeling operations back into the business. It now looks as if all this hard work is starting to pay off.

For the six months ended 31 March, adjusted earnings before interest, tax, depreciation and amortisation jumped 91% to £6.3m while adjusted profit before tax hit £4.4m. Revenue for the period grew 9% to £75.7m.

That being said, Benchmark is still ploughing funds back into growth. The firm recently completed a £17m commercial-scale fish vaccine manufacturing site in Braintree and its disease-free fish egg production facility in Norway expects to reach full capacity by 2019. Meanwhile, the group recently tapped shareholders for £12.2m to fund a 49% interest in a “strategically important Chilean JV” giving it a large presence in Chile, the world’s second-largest salmon market.

In my opinion, management is heading in the right direction by prioritising growth over profit at this stage. The global aquaculture market is expected to grow by 5% per annum to reach a market size of $219bn by the year 2022, and it would be silly for Benchmark not to make the most of the market expansion. 

Unfortunately, as the company continues to invest, City analysts are expecting losses to continue for the next few years, but over time, Benchmark’s efforts should really pay off, and I wouldn’t be surprised if a larger competitor buys out the enterprise and its technology before it has a chance to break even.

Follow the money 

Unlike Benchmark, Hikma Pharmaceuticals (LSE: HIK) is already profitable, but growth has hit the rocks in recent years thanks to rising competition and the firm’s own mistakes.

Still, now Hikma is in recovery mode, and it looks as if the business has the unreserved backing of its management. CEO Sigurdur Olafsson recently splashed out £262k to snap up 20,000 shares in the company and was shortly followed by Chief Scientific Officer Surendera Tyagi who spent £20k.

Analysts have soured on Hikma recently because the launch of what was supposed to be a blockbuster generic version of Advair, GlaxoSmithKline’s money-spinning respiratory medicine, has been held back by the US drugs regulator the FDA.

This was supposed to be one of the company pillars of growth in 2018 and 2019, but it now looks as if there will be no approval until at least 2020. In the meantime, the City believes Hikma’s growth will be sluggish with earnings growth of just 5% is pencilled in for this year.

Nonetheless, as with Benchmark, I believe that over the long term, Hikma’s growth will return as the world’s ever-expanding population demands access to more affordable healthcare. The stock might not look cheap today, trading at 20 times forward earnings, but the potential opportunity available to the business over the long term is clear.

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Rupert Hargreaves owns shares in GlaxoSmithKline. The Motley Fool UK has recommended Hikma Pharmaceuticals. 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.

With that in mind, here are two stocks which offer surprisingly strong growth prospects for the next couple of years.

Improving performance

Reporting on Tuesday was aquaculture health, nutrition and genetics business Benchmark (LSE: BMK). The company’s results for the year to 30 September showed that it continues to make progress with the delivery of its strategy. For example, revenue increased by 28%, rising by 13% on a like-for-like (LFL) basis. It continues to invest in a state-of-the-art production capacity in genetics and animal health, with £21.5m spent on it during the year. Additionally, £15.2m was invested in R&D over the year.

While the company’s bottom line remained in the red during the period, losses were reduced by 61%. Looking ahead to the current financial year, Benchmark is expected to return to profitability. It is then forecast to record a rise in earnings of 90% in the next financial year. This could improve investor sentiment over the medium term. With the company trading on a price-to-earnings growth (PEG) ratio of just 0.5, it seems as though sentiment has scope to improve significantly in future.

Certainly, the stock remains relatively high-risk and is still not yet a profitable entity. Therefore, in the near term it would be unsurprising for its share price to be volatile. But with a bright set of forecasts, its price could deliver high capital growth over the medium term.

Consistent growth prospects

Also offering high growth prospects is online fashion retailer ASOS (LSE: ASC). The company experienced a challenging period between 2013 and 2015, when its strategy of investing in new international markets was called into question after disappointing financial performance. However, under its current management team it seems to have developed a successful strategy which has seen it generate growth in earnings of 43% and 25% in the last two years.

Looking ahead, ASOS is forecast to post a rise in its bottom line of 26% in each of the next two financial years. Beyond that, more growth could be ahead as it seems to have a successful strategy as well as improving levels of customer loyalty.

As such, while a price-to-earnings growth (PEG) ratio of around 2 suggests that its shares are expensive at the present time, there could be further upside ahead. That’s especially the case if the current bull run continues and investors become increasingly optimistic about the valuations placed on stocks that are able to offer above-average earnings growth.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. 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.

The manufacture and sale of animal feed and drugs is probably more profitable than the human sides of these businesses because there’s less competition and the market is much more substantial. 

Eco Animal Health Group (LSE: EAH) is a great example. Over the past five years, as the company’s revenue has expanded by just over 100%, pre-tax profit has exploded 310% and earnings per share have risen 210%. On the back of this growth, shares in the company have gained 285% over the past three years. 

Expanding into new markets

Eco sells animal health products around the world, and as the company figures show clearly, this is a lucrative and rapidly expanding business. 

The firm’s latest product release is Aivlosin, a drug to control of both acute and chronic respiratory and enteric diseases. In the past year, Eco has received approval to sell this treatment in Egypt, Turkey, the US, Malaysia, Mexico, and Brazil. 

These new approvals should allow the group to continue on its growth trajectory. City analysts are predicting earnings per share growth of 42% for the year ending 31 March 2018, following earnings growth of 68% for the last fiscal year. 

So, even though the shares look expensive at 25.7 times forward earnings, when you factor in Eco’s growth, the stock is actually cheap. Specifically, the shares trade at a PEG ratio of 0.6. A yield of 1.3% is also on offer and the payout is growing steadily. 

Investing for the future 

Benchmark Holdings (LSE: BMK) could be a future giant. Even though the company is expected to report revenues of £135m (up 24% year-on-year) for the year ending 30 September 2017, profit remains elusive and a loss of £12.5m is expected. Still, this performance is a reversal of fortunes for the group after warning on sales in the first half. 

However, the company has a medicines and vaccines pipeline of 46 products, of which five are in regulatory phase, and 10 are in pre-regulatory development trials. Benchmark is essentially two businesses, a nutrition business (animal feed) and a pharma one. The latter is growing rapidly with sales up 49% to the end of September according to a trading update from the company published today. The feed business is growing at only half this rate. 

A course for growth 

As Benchmark’s new products hit the market, the group’s growth should explode and this will be good news for investors. So, while the business might not look to be a great buy today (as it is currently lossmaking) over the next decade or so, as new treatments hit the market, earnings should surge. 

I’m more positive on its outlook than most other early-stage pharma companies in the same position as the business is already producing a steady stream of revenue, which will support it through the development stage. 

If the firm can bring all of the products currently in its pipeline to market, this certainly looks to be one stock you might regret not buying.

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Rupert Hargreaves has no position in any share 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.

The company’s shares have now fallen by 47% this year. Should shareholders simply ditch this disappointing stock before things get worse?

What’s gone wrong?

One of the firm’s big hopes is a new treatment for sea lice, which have become a serious problem for producers of farmed salmon. Back in June, the company said commercial trials were due to start “in the coming weeks”. The product was expected to contribute “significant revenues” in the second half of the year.

Unfortunately, this hasn’t happened. In Friday’s update, we learned that the trials have still not started and are unlikely to do so before the end of September when the company’s financial year ends. This means the new product won’t make any contribution to revenue in the 2017 financial year.

This is disappointing as revenue from the new product was expected to offset falling sales of Benchmark’s older sea lice treatment Salmosan. This decline is serious. Sales in the group’s Animal Health division fell from £12.2m to £7.1m during the first half of this year. The division’s operating loss doubled from £3.2m to £6.7m during the same period.

Full-year outlook

Profit forecasts for 2017 were slashed in November last year, after the group warned of delayed investment and lower growth rates in certain sectors. Friday’s news is another disappointment.

Benchmark reported a pre-tax loss of £22.4m last year. Analysts expected the group to report adjusted earnings of 0.68p per share this year. But even if these forecasts are left unchanged, the stock still trades on a forecast P/E of 66. There are big hopes for 2018, but I don’t think the shares are cheap enough to be worth the risk.

I’d buy this instead

Benchmark’s management has promised more than they can deliver. By contrast, Royal Dutch Shell (LSE: RDSB) chief executive Ben van Beurden has delivered exactly what he promised.

Mr van Beurden has reduced the group’s net debt, improved cash flow and made good progress with planned asset sales. At about £22, Shell’s share price has risen off the lows of £14 seen at the start of 2016. But I think the stock still offers a useful amount of upside

The acquisition of BG Group is starting to look like a smart move, and the stock still offers a dividend yield of around 6.4%. This payout should be covered by earnings this year. In my opinion, this pretty much eliminates any risk of a dividend cut.

What about upside?

All of that is fair enough, but with Shell trading on a forecast P/E of 14.8, surely potential gains are limited? I’m not so sure. I believe the final stage of the oil and gas group’s recovery will come when the price of oil rises to a more sustainable level.

The extensive cost-cutting that’s taken place across the industry means that a fairly small increase in the price of oil could drive a big increase in profits. I believe this is inevitable at some point in the next year or two. In the meantime, this 6%+ dividend yield continues to reward patient shareholders.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell B. 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.

Benchmark Holdings (LSE: BMK) describes itself as an “aquaculture biotechnology and food chain sustainability business” — fish breeding, genetic technology, and stuff like that.

After a few year of losses, Benchmark is forecast to deliver a modest profit this year which should start ramping up in 2018. Right now we’re looking at a forward 2018 P/E of around 38, but in early profit days it’s not a very useful measure — and it would actually still give us an attractive PEG of 0.5. So how is Benchmark really doing?

First-half results released Tuesday showed an increase in revenue of 69% to £69.2m, with an operating loss reduced from £15.2m in the first half last year to £6.7m.

Net debt at the interim stage stood at £12.8m, down from £14.6m, but there was a big share placing again during the period, as there was last year.

Long-term prospects

The firm is clearly gaining interest in its products and services, with a new long-term collaboration project agreed with salmon producer Salmar. And Benchmark’s newly acquired shrimp breeding operation, INVE Aquaculture, has helped it to a contract with Manit Farms of Thailand for its water quality management technology.

For the rest of the year, the company says it  should broadly meet current expectations, and reckons that a number of products coming to market between 2017 and 2019 should support its long-term growth.

Further share placings could cause issues with dilution, but if we’re really close to the turnaround phase, I reckon the 73p shares look like good value — and relatively low risk as far as lossmaking “jam tomorrow” companies go.

Wooden grow

I’m more fearful when I look at Accsys Technologies (LSE: AXS), a company specialising in the chemical preservation of wood. The firm floated on AIM as far back as 2005, and apart from a couple of years of small profits in 2008 and 2009, it’s been losses all the way.

The year ended 31 March 2017 brought in a pre-tax loss of €4.4m (from a loss of €0.5m a year previously), even though revenues rose by 7% to €56.5m. Annual losses have been relatively small and the firm’s cash pile has been depleting slowly, but a share placement in April, which raised approximately €14m, was necessary — and that has to disappoint those investors who really were expecting to see profits by now.

Time running out?

In fact, almost exactly two years ago, my colleague Peter Stephens pointed out that Accsys was “forecast to post a pre-tax profit of around £0.7m in the current year, followed by a pre-tax profit of £1.2m next year“, which put it on an attractive growth valuation at the time. Back then I’d have been bullish about it myself. But it didn’t happen, and analysts are still predicting losses to continue until at least 2019. 

Meanwhile, the share price has collapsed by 96% from an early peak of around 2,260p back in 2007, to just 78p today. I’m seeing something of a niche company, disappointing false starts, and no sign of light yet. I do wish Accsys well, but right now the shares are in bargepole territory for me.

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Alan Oscroft 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.

Food technology

Are you ever on the lookout for a tempting growth opportunity? I see one such possibility in Benchmark Holdings (LSE: BMK), the biotechnologist developing hi-tech products for the food production industry. It has a new sea bass vaccine on trial, as an example of what it does.

The company has been recording losses, but analysts are forecasting a swing into profit this year with a substantial improvement in 2017. Today the shares are up 4.3% to 61p on the upbeat news that the company is set for a new placing of 47m shares — at 65p per share, a premium to the market price.

The £30m raised will, in the words of chief executive Malcolm Pye, “allow us to continue to execute our strategy of making value-enhancing selective acquisitions, and allow Benchmark to invest in some important strategic joint ventures to deliver significant synergies and sales growth.“

A P/E of 23 and a PEG of 0.3 based on 2017 forecasts look tempting to me.

Mining boost

Rio Tinto (LSE: RIO) shares are up 58% since their 2016 low on 20 January, including a 3% boost today to 2,490p after the miner told us it has completed the sale of its Mount Pleasant thermal coal assets in Australia for $220.7m plus royalties — taking the value of the firm’s divestments since January 2013 to $4.7bn.

The news comes on the back of mixed first-half results on 3 August, in a period in which new chief executive Jean-Sébastien Jacques described the market as “uncertain and volatile“. The shares actually dipped a little on the day of the results, but that doesn’t really take the shine off the 19% gain we’ve seen since the Brexit vote, so is Rio Tinto a post-referendum safe bet?

There’s still a 24% fall in EPS forecast for the full year, putting the shares on a P/E of 17, and there’s a not-too-exciting dividend yield of 3.6% on the cards. But the shares are clearly valued for their attractive long-term safety and their income potential, and I find that hard to argue with.

Flying oily

One of today’s biggest risers is Cairn Energy (LSE: CNE), whose shares are up 7.4% to 195p, on the day that UBS raised its stance on the share from neutral to buy. Cairn shares got off to a great start in 2016, climbing 82% from January’s low point to late April, but since then we’ve seen a 16% fall. Does today’s uprating suggest good things to come in the long term?

It’s hard to place any meaningful valuation on Cairn shares right now, as a couple more years of losses mean there’s no P/E or dividends to evaluate. But Cairn does have some nice prospects.

The firm should have new production from its Catcher and Kraken prospects in the North Sea coming online next year, and though production costs in the North Sea are relatively high, oil prices could well be significantly higher by then. And production costs at Cairn’s African projects should be attractively low, with potential discoveries there quite promising.

I personally dislike not having bottom line profits to count, but Cairn must be a serious option for oil investors.

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Of course, it would be easy given the performance of the oil price for companies operating within the sector to think short term. In other words, to focus on survival rather than long-term growth. However, Premier Oil (LSE: PMO) appears to be putting itself in a position where it can record stronger growth and emerge from the current crisis in a better position relative to its peers through the acquisition of Eon’s North Sea assets as well as a strategy where it,s seeking to become increasingly efficient.

Although Premier Oil is forecast to record a pre-tax loss of £125m combined over the next two years, it seems to be in a good position to record much better performance in the medium term. Therefore, for less risk-averse investors, now could be a buying opportunity.

Share price rises ahead?

Similarly, Benchmark Holdings (LSE: BMK) could prove to be an excellent turnaround play. Although the food and farming development specialist has been in the red for each of the last two years, it’s expected to move into profit in the current year. This has the potential to cause a step-change in investor sentiment, with Benchmark Holdings’ share price having the scope to rise following its 40% decline since the turn of the year.

Looking ahead to next year, Benchmark Holdings is forecast to more than double its pre-tax profit. And with it trading on a price-to-earnings growth (PEG) ratio of only 0.2, there seems to be significant scope for an upward rerating.

Income appeal

Meanwhile, Epwin’s (LSE: EPWN) share price continues to disappoint. The supplier of low-maintenance, sustainable and energy-efficient products to the new build and social housing sectors has recorded a share price fall of 9% in the last year. However, this could change moving forward, since Epwin is expected to report an improved financial performance in the current year.

In fact, Epwin’s bottom line is due to rise by 21% this year, followed by further growth of 5% next year. When this is combined with its price-to-earnings (P/E) ratio of just 8.8, it indicates that there’s major upward rerating potential. And with Epwin yielding 5.4% from a dividend that’s covered 2.1 times by profit, it continues to offer clear income appeal for long-term investors.

The post Are Premier Oil plc, Benchmark Holdings plc and Epwin Group plc 3 ‘screaming buys’? appeared first on The Motley Fool UK.

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And how about Ocado (LSE: OCD) (up 10%) and Hunting (LSE: HTG) (down 8%), whose shares have enjoyed different fortunes today? Elsewhere — in case you haven’t noticed — Benchmark Holdings (LSE: BMK) has risen almost 60% in value in a tough market since 23 July.

Taking profit at 1,419p?

Kier is showing some signs of weakness today, with its stock down around 4.5% at the time of writing. I wouldn’t worry too much: its shares are up over 20% this year, so some investors are just locking in profits, in my view. Preliminary results for the year ended 30 June showed healthy growth rates for revenues, core earnings, earnings per shares and dividends. Return on capital employed is excellent — “in excess of 15%“, the group said. Its core margins are thin but its balance is strong, while its order book is reassuring. True, at 18x forward earnings, its shares are not incredibly cheap but could be added to a diversified portfolio. 

Growth at 352p

Its third-quarter results this week confirm that the notion that Ocado deserves a valuation of between 350p and 450p a share, in my view, and that is backed by rising sales and average orders per week. Its beta is much higher that that of Kier, and its shares are much more expensive, according to most metrics, so you’d be buying volatility for your portfolio, but then Ocado could shine in this growth-starved world. Its free cash flow profile is still tight, its balance sheet is relatively sound — so, Ocado is not exactly a traditional value play. However, capital gains could be huge should it hint at a symbolic dividend payment at some point over the next 24 months. 

Impairment risk at 433p

I have mixed feelings, given that too much uncertainty still surrounds Hunting, whose stock price has fallen 17% so far this year in the wake of today’s performance. Weakness in its stock price presents a good opportunity to add it to your wish list, but then you should keep a close eye to its order book and operating costs line before buying into this restructuring story. Analysts at JP Morgan announced today to have cut their price target from 518p to 338p, which means that if they are right, Hunting could be currently overvalued by almost 30%. I am not that bearish, but my advice would be to wait, based on impairment risk. 

A healthy look at 97p

Benchmark is a small biotech firm that has been on my wish list for a few weeks now. I reiterate the view that its success hinges on its products pipeline, which is hard to value but looks really promising. Strategy-wise, management is showing good progress, and at 97p a share you’d be snapping up a very expensive stock based on its cash flow profile and revenue multiples, but one that could surely reward your patience. It could be worth it, in my view.

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Scary stuff! 

Shockwaves have been felt across a multitude of sectors in the last week or so, but certain stocks have held up relatively well despite rising volatility. Take Vodafone (LSE: VOD), Benchmark Holdings (LSE: BMK) and Admiral (LSE: ADM): their shares have been more resilient than I thought. Why is that? 

Hidden Problems

A low-beta stock, Vodafone stock is under pressure today but is intrinsically less volatile than other more cyclical investments. True, it is down 9% in value this month, but that’s not much of a drop, really — its shares should trade much lower than their current value of 214p based on the telecom group’s fundamentals, in my view!

Investors seem to shrug off concerns about Vodafone’s lowly core growth rates and high indebtedness, which is never a nice combination; in fact, they seem to assume that Vodafone will be able to generate enough free cash flow to de-lever its balance sheet over time, while paying out hefty dividends. 

This is why, I reckon, Vodafone is still trading 20% above its 52-week low of 179p a share. Its stock is flat in 2015, but the second half of its fiscal year 2016 could be more challenging, whether or not volatility is here to stay.  

According to my calculations, its core cash flows could be £500m/£1bn lower than expected at the end of its fiscal year based on its projected revenues and core margins. In short, I’d keep a close eye on its next trading update in November to determine whether its shares have further to fall, given their projected price-to-earnings ratio of 78. 

A Less Cyclical Bet 

The shares of Benchmark Holdings are down only 2% at the time of writing, which is a respectable performance and comes on the back of prolonged strength in recent days and weeks, having risen 45% over the last month of trade. Is its current valuation of 92p a share an opportunity or a threat, though? 

Its high trading multiples based on core cash flows do not point to “bargain territory”, and that’s plainly obvious. Yet at this stage of maturity, value hinges on its pipeline of products and its broader growth strategy.

Well, this health science business could surely deliver more growth and higher returns to shareholders over the medium term, as I recently argued. 

Its valuation is less likely to be affected by market volatility, which has doubled to 28 in recent days, as gauged by the Vix Index, but it could benefit from a rebound in stock prices — so you may be right to buy and hold its stock right now!

Admiral: Fully Priced

Its shares are giving up some of the gains that they have recorded in recent weeks, but they are in positive territory over the last month of trading. 

When its first-half results were released last week, chief executive Henry Engelhardt said that it turned out to be “a good start to a challenging year”. “Profits are up, customer numbers are up, earnings per share is up, the dividend is up … you might say it was a pretty ‘up’ first half!“

Its recent trading update confirmed that Admiral is growing, but in my view there’s not enough growth in the business to justify a stock price valuation that is above 16 times its forward earnings per share. Based on 1H15 results, its sales are up only 2%; pre-tax is profit is up 1%; earnings per share are up 4%; and the dividend is up 3%. 

There are obvious regulatory risks in the sector. Admiral said that it continues to make “good progress towards full compliance with the requirements of the Solvency II regime in advance of it taking effect in January 2016 and expects to be fully compliant from that date,” and is developing an “internal economic capital model” which will be used to calculate regulatory capital requirements following approvals from regulators. 

These elements bring uncertainty, which is not going to affect your all-in returns only if you choose other stocks!

The post Why Are Vodafone Group plc, Benchmark Holdings PLC & Admiral Group PLC So Resilient? appeared first on The Motley Fool UK.

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Here’s my quick take. 

Benchmark Trades High — Too High? 

The shares of Benchmark are gaining strength after a poor performance earlier this year, when its stock plunged 30% on the back of disappointing sales figures for Salmosan Vet, a flagship sea lice treatment that is off-patent. 

Benchmark is an health science business that has star investor Neil Woodford on its shareholder register: it is a more obvious investment than IGas based on the sector’s trends, growth rates, financing needs and a few other elements. 

Reports over the weekend suggested that the group — which is growing by acquiring assets, most recently in the aquaculture genetics and breeding sector — is well positioned to launch new products, but in spite of that it remains unlikely to be profitable for some time. 

“Benchmark is pioneering vaccines for animals as an alternative and the group is also at the forefront of biotechnology in the animal sector,” Thisismoney.co.uk reported on Saturday. 

“One of its most advanced products is HypoCat, designed to treat human allergic reactions to cats by vaccinating cats rather than the people affected by them.” 

Its stock has been on a roll since 27 July, when it announced a couple of bolt-on, cash-funded acquisitions for £11m. It traded at 62p before then, which yields a 40% performance in less than three weeks, and means that the market is now convinced that its strategy could pay off. 

I’d certainly keep an eye on it with the idea of investing part of my savings in its shares sooner rather than later. Consider that at its current price of 88p a share, its valuation is only about 15p above IPO — which was priced in December 2013 — and well below its 52-week high of 125p, but it is almost prohibitive based on revenues and cash flow multiples. That said, if you’re happy to embrace risk by betting on its healthy pipeline of products, you should snap up its stock right now. 

It is A Balancing Act For IGas Energy

IGas stock is rising from a very low level — in spite of today’s performance, it is still down 70% over the last 12 months!

Management has the backing of the UK government, but fracking doesn’t have the backing of local communities. This might not be an insurmountable hurdle over the very long term, but it renders IGas Energy’s mission particularly difficult and comes on top of obvious financial constraints, given that its balance sheet carries a significant debt load. 

“The government continues in its attempts to break down the barriers to allow companies to frack in the UK after the Minister of State for Energy and Climate Change Andrea Leadsom visited IGas Energy’s proposed site in Warrington, Cheshire, on Thursday,” Alliance News reported on Friday. 

Operationally, IGas is faced with obvious regulatory risks. Consider that Cuadrilla Resources, a rather small shale gas company based in Staffordshire, recently said that it planned to appeal against the Lancashire County Council’s decision to reject two of its planning permits. Why?

Hydraulic fracking isn’t loved very much by the locals as it brings “noise and visual impacts“, and here is where the investment in IGas and any other rivals becomes particularly risky. 

In fact, although it’s possible that IGas may find a way to get around most of these issues over time, it’s also very likely that many of its projects will have to face significant delays, which renders vain any attempt to model its cash flows accurately. This is also a threat to its business model. 

Elsewhere, its partnership with Switzerland’s Ineos is one element I like, but its financials are stretched, which signals dilution risk.

So, personally I’d avoid this highly speculative trade, whose value is down 30% since the turn of the year.

The post Benchmark Holdings PLC & IGAS Energy PLC Are Surging Today… Should You Buy Either? appeared first on The Motley Fool UK.

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Alessandro Pasetti 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.