For investors with a medium-term view, I don’t see any reason to be alarmed. Recent updates from oil firms suggest to me that market conditions are continuing to improve, albeit slowly.

I’m backing this stock

Companies which provide engineering services to oil and gas companies can be a useful indicator of market conditions. I believe that after several years of heavy cutbacks, big oil producers will soon have no choice but to increase spending if they want to avoid production declines. Recent news seems to support this view.

On 12 December, energy services firm Wood Group reported “positive trading momentum” and “revenue growth of over 10%” for 2018.

Last week, FTSE 250 rival Petrofac (LSE: PFC) reported $5bn of new orders in 2018, and said its backlog of work was unchanged from one year ago, at $10.2bn.

Petrofac’s management expects the firm’s 2018 results to be in line with market forecasts. They say that the firm’s shift back to its roots as a provider of engineering and operating services is continuing to go to plan. I expect this to drive profit margins higher over the next few years.

The boss has been buying

One risk for Petrofac shareholders is that a Serious Fraud Office investigation into the firm which began in 2017 is still ongoing. A big fine is still possible, but as a shareholder, I believe this risk is already factored into the share price.

Ayman Asfari, the firm’s founder and chief executive, seems to agree. Back in March, Mr Asfari spent £10m on Petrofac shares, taking his total holding in the firm to 18.8% (worth about £296m).

Mr Asfari paid 494p per share in March. As I write, the share price is 452p. This values the firm at just six times forecast earnings for 2018, with a forecast dividend yield of 6.5%.

In my view this is too cheap. I rate the shares as a buy, and may soon add more to my own holding.

A speculative buy?

Back in October 2017, I rated Kurdistan oil producer Gulf Keystone Petroleum (LSE: GKP) as “a speculative buy“ at 95p. Today, the shares are trading 80% higher at around 170p.

I remain bullish about this business. Figures for the current year show that Gulf Keystone generated a record pre-tax profit of $26.7m during the first six months of 2018. Low cash operating costs of just $3 per barrel mean that the firm can produce oil profitably at almost any oil price.

Regular oil payments mean that these profits are matched by good cash generation.  By early September, Gulf Keystone had built a cash balance of $240m. This should be enough to fund next year’s planned upgrade to the Shaikan field, which will see production rise from 30,000 barrels of oil per day (bopd) to 55,000 bopd.

This business carries some political risk, as the Shaikan field is located in the Kurdistan region of Iraq. Despite this, I think the shares look good value at the moment. Based on broker forecasts, the shares currently trade at less than five times 2019 forecast earnings. Gulf Keystone remains a speculative buy, in my opinion.

The post Is the Petrofac share price a bargain or should I buy GKP for 2019? appeared first on The Motley Fool UK.

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Roland Head owns shares of Petrofac. 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.

Despite this, the stock still trades on a relatively low valuation. Alongside another cheap stock which released results on Tuesday, could it be worth buying for the long term?

Improving outlook

As mentioned, the price of oil has risen significantly in recent months. In fact, it is up by around 50% in the last year, and this has improved the outlook for a number of oil and gas producers. It means that the focus on cost-cutting and efficiency of recent years has been transferred to an aim to increase production in many cases, with Gulf Keystone Petroleum set to increase gross production capacity over the next 12 to 18 months.

Looking ahead, the company is expected to deliver a substantial rise in pre-tax profit over the next two years. It is forecast to rise from £14m last year to £49m this year, followed by a further increase to £61m next year. Even though its shares have risen sharply in the last 12 months, they still seem to offer a wide margin of safety. For example, they trade on a price-to-earnings (P/E) ratio of 10.5 using 2019’s forecast earnings. This suggests there could be further upside potential.

Certainly, the oil price could be volatile and there is no guarantee that it will continue to rise. However, with what seems to be a bright future, the risk/reward ratio of Gulf Keystone Petroleum appears to be attractive at the present time.

Bargain buy?

Also offering growth at a reasonable price is consumer goods producer McBride (LSE: MCB). It released a trading update on Tuesday that showed it has endured a challenging year. It now expects profit for the full year to be towards the lower end of analyst expectations, with weaker sales in May and June being the primary reason for this.

Clearly, this is disappointing news for investors. However, the company is expected to return to growth in the 2019 financial year, with its bottom line forecast to rise by around 19%. This puts it on a price-to-earnings growth (PEG) ratio of 0.5, which suggests that it offers a wide margin of safety.

Following McBride’s trading update, its share price fell by around 6%. This suggests that investor sentiment remains weak following a 12-month period in which it has lost a third of its value. However, with the sale of its European Personal Care liquids business for £12.5m being announced on Tuesday and the company having such a low valuation, it could offer impressive returns over the long-term.

The post Has the GKP share price finally turned a corner? appeared first on The Motley Fool UK.

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Peter Stephens 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.

The shares are up 2% at 187p, as I’m writing, giving the company a market capitalisation of £2.6bn. This is still well below the valuation it once commanded. In an improved oil price environment and after today’s results, is Tullow a top turnaround buy?

Improving performance and bright future

The Africa-focused group’s revenue of $1.72bn was 36% ahead of 2016, as its working interest production surged 32% to an average of 94,700 barrels of oil equivalent per day (boepd).

Despite $682m of write-offs and impairments, it managed a small operating profit of $22m, although after net finance costs of $310m and a tax credit of $111m, the statutory bottom-line was a loss of $189m. However, with the write-offs and impairments being non-cash items, the cash flow picture was considerably better: the company generated free cash flow of $543m.

Tullow got through the oil rout with a millstone of debt, helped by supportive lenders. Net debt remains relatively high at $3.5bn but is falling and is now only just above management’s target level of below 2.5 times EBITDAX (earnings before interest, taxes, depreciation, depletion, amortisation and exploration expenses).

Looking ahead to 2018, the company has guided on production of between 86,000 and 95,000 boepd. City analysts are forecasting earnings per share (EPS) of around $0.20 (14.4p at current exchange rates), giving a price-to-earnings (P/E) ratio of 13. This looks an undemanding rating to me as I see scope for production upgrades this year, while the company’s valuable development and exploration assets bode well for the longer term. As such, I rate Tullow an attractive ‘buy’.

Moving towards full potential

Also on my buy list of turnaround oil stocks is Gulf Keystone Petroleum (LSE: GKP). This producer, whose operations are in the Kurdistan Region of Iraq, is a smaller company than Tullow, having a market capitalisation of £268m at a current share price of 117p.

Gulf Keystone hasn’t released its results for 2017 yet but said in an update in January that average gross production for the year was 35,298 bopd. It also guided on production for 2018 of between 27,000 and 32,000 bopd, the lower range being due to a delayed investment programme from last year.

Subject to the resolution of certain commercial matters and the government continuing regular payment of monthly invoices, management intends investing to expand production capacity to 55,000 bopd in the near-to-medium term. This would be a significant step towards development of the full potential of its field and production of around 100,000 bopd.

For 2018, City analysts are forecasting EPS of around $0.15 (10.8p), giving a P/E of under 11. Visibility on commercial agreements and payments appears to be improving in Kurdistan and with Gulf Keystone having a strong balance sheet and looking more confident about investing to increase production, the low P/E makes the shares look very buyable to my eye.

The post Is Tullow Oil plc a top turnaround buy after final results? appeared first on The Motley Fool UK.

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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.

The company still seems to be viewed as poison by many in the market but does this present a great opportunity for new investors to make a killing and old shareholders to recoup their losses? In other words, is it finally time to start buying Gulf Keystone stock?

From the brink of insolvency

The traumatic events of last year were precipitated by an overload of debt on Gulf Keystone’s balance sheet, a falling oil price and a deterioration in regional geo-politics.

The oil price and political situation left Gulf Keystone in a position in which it would be unable to service, refinance and/or repay its debt. With the company teetering on the brink of insolvency, management undertook a painful restructuring of the balance sheet. This involved a significant debt reduction from over $600m to $100m through the conversion of over $500m of debt into equity and a $25m equity raise through an open offer at 1.09 cents (0.82p) a share.

Management said the strengthened balance sheet and liquidity would allow Gulf Keystone to implement its near-term investment plan to maintain production at 40,000 barrels of oil per day (bopd) with the potential to increase production to 55,000 bopd.

Chief executive Jón Ferrier commented: “With the support of the MNR [Kurdistan Regional Government Ministry of Natural Resources], which has established a pattern of payments, and with a stabilising oil price environment and sustainable debt levels, we have the foundations of a strong future equity story for a restructured GKP to develop the Shaikan field and unlock its potential as one of the most significant assets in Kurdistan.”

Has there ever been a better time to buy?

Despite the transformation of the balance sheet (Gulf Keystone reported a cash position of $104m at 31 January), an improving oil price and some brightening of the geo-political outlook, the company’s shares are trading today at below the level when the very existence of the company was under threat.

A 1-for-100 share consolidation followed the restructuring, which means that today’s share price of 118p is equivalent to 1.18p in ‘old money’. The shares were trading at 2.02p immediately prior to the announcement of the restructuring.

Of course, Kurdistan remains a volatile region, although this is something that has always been known to investors. Also, discussions with the MNR regarding a regular and timely payment cycle and other commercial and contractual conditions have yet to conclude. However, management appears optimistic of gaining satisfactory clarity and “looks forward to making further investments to achieve plateau production at nameplate capacity of 40,000 bopd”.

Gulf Keystone has always been a relatively high-risk investment. Indeed, I have rated it as wholly un-investible over the last couple of years. However, looking at the business and potential today, I believe there’s never been a better time to buy the shares — albeit for investors with a higher tolerance for risk.

The post Is it finally time to buy Gulf Keystone Petroleum Limited? appeared first on The Motley Fool UK.

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• Down 10% this year, this S&P 500 banking giant looks super-cheap
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• As Diageo shares sink, this ‘opposite’ stock in the FTSE 250 is soaring 
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G A Chester 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.

One such opportunity is Whitbread (LSE: WTB). The owner of Costa Coffee and Premier Inn has recorded a share price fall of 21% in the last year and while some of this is justified, its shares appear to have more than adequately priced-in the risks they face. Namely, concerns surrounding the impact of the new living wage as well as doubts about the prospect for consumer confidence as UK interest rates begin to rise.

However, with Whitbread trading on a price-to-earnings growth (PEG) ratio of just 1.5, it seems to offer a sufficiently wide margin of safety to warrant investment. And with demand for good value hotel rooms likely to remain buoyant and its Costa Coffee chain being the dominant player in a hugely popular space, Whitbread’s long-term future remains sound.

Risky-yet-enticing

Also offering substantial turnaround potential is Lonmin (LSE: LMI). Unlike Whitbread, the risks present in its industry have come home to roost and the mining company has been lossmaking in each of the last two years.

Clearly, this is largely linked to the decline in commodity prices and while this risk remains, an improved profit outlook as well as a low valuation indicate that Lonmin could continue the turnaround story that’s set to see its bottom line move from red to black next year.

For example, Lonmin’s share price has fallen by 99.9% in the last five years and while its asset base may not be as strong as it once was, this indicates that there’s tremendous scope for capital gains if investor sentiment improves. With a refreshed strategy, a recent fundraising and a brighter outlook for commodity prices, Lonmin is a risky-yet-enticing recovery play.

Look elsewhere?

Meanwhile, Gulf Keystone Petroleum (LSE: GKP) has also suffered from the impact of falling commodity prices, with its shares being down by 88.2% in the last year. However, while a number of its sector peers have staged a recovery in recent months as the price of oil has soared from $28 per barrel to around $50, Gulf Keystone Petroleum has been left behind. In fact, in the last three months its shares have fallen by 67% while the price of oil has risen by almost 30%.

Clearly, Gulf Keystone Petroleum’s internal challenges are more than offsetting a brighter external outlook. And with payment problems likely to remain as well as the geopolitical outlook for the Northern Iraq region being highly uncertain, it may be prudent to look elsewhere for turnaround potential.

The post Are Whitbread plc, Gulf Keystone Petroleum Limited and Lonmin plc the best turnaround stocks EVER? appeared first on The Motley Fool UK.

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• As Diageo shares sink, this ‘opposite’ stock in the FTSE 250 is soaring 
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Peter Stephens 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.

Gulf Keystone

Gulf Keystone operates in the Kurdistan Region of Iraq, where a refugee crisis and the battle against ISIS have first claim on the regional government’s funds. Monthly payments to Gulf Keystone are barely enough to maintain production, let alone enable it to repay $250m of guaranteed notes and $325m of convertible bonds, which mature next April and October respectively.

In a strategic update on 29 April, the company said it had entered into a standstill agreement with noteholders and bondholders regarding a biannual coupon payment of $26.4m, which was due that month. The outcome of Gulf Keystone’s ongoing negotiations with debtholders is critical, because, as the directors say, there is a “need for near-term fundraising and the restructuring of the Company’s balance sheet” (my bold).

In these situations, a big part of that need is often met by the lenders swapping a substantial part of their debt for equity, these new shareholders leaving the existing shareholders with only a fractional proportion of the enlarged equity.

At what share price would such a debt for equity swap take place? Well, the current market pricing of the notes, bonds and equity suggests at a substantially lower share price than the current 4.6p. In this light, I believe selling the shares would be the most prudent move, as there is the potential to buy back into a stronger, re-financed company at a lower price.

Xcite Energy

High noon with debtholders is even nearer for North Sea oil firm Xcite Energy than for Gulf Keystone. Xcite has $135m of bonds that are due for repayment at the end of the current month and only $14m of cash available at the last reckoning.

As the company said on 24 May: “These circumstances indicate the existence of material uncertainty in relation to the Group’s ability to continue as a going concern”. Like Gulf Keystone, Xcite is locked in negotiations with bondholders.

Also like Gulf Keystone, there is no sign of a cash-rich partner coming to the rescue at this stage or any whispers of bondholders being prepared to simply roll over the debt without a balance sheet restructuring. Again, Xcite’s shareholders appear hugely vulnerable to being diluted in a debt for equity swap as part of a restructuring of the company’s balance sheet. As such, I have to rate the shares a sell at their current 10.75p.

Fastjet

Legendary investor Warren Buffett absolutely despises airlines as investments, seeing no merit whatsoever in them. It’s a tough business to make sustainable profits from at the best of times, but trying to establish a budget airline in Africa, as Fastjet is doing, seems a particularly tough task.

The company has been burning cash at a rate of knots, and appears to have been over-ambitious in its expansion to the extent that major shareholder and brand owner Sir Stelios Haji-Ioannou has successfully campaigned to oust a number of directors, and now has the chairman in his sights to complete the clearout.

Fastjet is another small cap in big trouble, but one thing in its favour is that it has no debt (thanks to a £50m placing in April 2015). However, cash is running out. In its results last week, the company said its cash flow projections are sensitive to such things as a tough trading environment and aviation fuel prices which are currently not hedged; and that it “expects to raise further funds in the near future to provide additional headroom”.

A discounted placing at below the current share price of 25.75p would be no surprise, and I believe the shares are best avoided until the company’s future is clearer.

The post 3 small caps in BIG trouble? Gulf Keystone Petroleum Limited, Xcite Energy Limited & Fastjet plc appeared first on The Motley Fool UK.

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• As Diageo shares sink, this ‘opposite’ stock in the FTSE 250 is soaring 
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G A Chester 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.

Big slump

Xcite Energy (LSE: XEL) hasn’t benefited from the oil price rise of late, with its shares down 66% over the past 12 months to 12p, and down 83% over two years — and since the shares’ low on 20 January, we’ve only seen an 11% recovery.

Although rising oil prices should help and Xcite has some interesting North Sea prospects, the North Sea isn’t among the regions of the world with the lowest costs of production. In fact, in its Q1 update from just a week ago, Xcite comfirmed that it had only $14.13m in cash at 31 March, and that it is in negotiations with bondholders over bonds due for repayment on 30 June — they were issued two years ago, and the firm admitted its “current and forecast cash position is insufficient to repay the Bond capital in full by 30 June 2016″.

Another faller

Shares in Rockhopper Exploration (LSE: RKH) have also slipped in the past 12 months, by 53% to 38p, but at least in this case we’ve seen a 54% recovery since their January low. Although Rockhopper really needs the oil price rise to keep on going for quite a bit longer, the Falklands-focused explorer does appear to have enough cash to keep it going at least in the short term.

At the end of last year, Rockhopper was sitting on cash of $110m, and though some of that will surely have gone by now, the prospects for the firm’s Sea Lion field and Isobel complex, reported by an independent audit mid-May, surely boost confidence in the firm’s future. In fact, chief executive Sam Moody said that “In our view this new audit confirms the potential of the North Falklands to be a billion barrel basin“, and that sounds like the kind of thing that would even attract future partners should more funding be needed.

End of the line?

But then, sadly, I turn to Gulf Keystone Petroleum (LSE: GKP), whose shares continue to languish at around 4p apiece — that’s an 88% drop in 12 months, and a 99% loss since they peaked back in the heady optimistic days of 2012 when oil fetched a packet on the market.

Gulf’s problems have been compounded by operations in the Kurdistan region of Iraq, and by the government just not paying for the oil it was taking from the company for export. Regular payments were finally agreed and are ongoing, but there’s been nothing forthcoming towards the arrears yet and there are massive debt repayments needed — of $250m in April 2017 and $325m in October 2017.

There are various standstill arrangements in place, but something drastic needs to happen if Gulf Keystone is to be saved. Unfortunately, all I can see is a deal that results in bondholders getting pretty much the whole company and current shareholders being left with little more than headaches — though I do hope to be proved wrong.

The post Is it make or break for Xcite Energy limited, Rockhopper Exploration plc & Gulf Keystone Petroleum Limited? appeared first on The Motley Fool UK.

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Alan Oscroft owns shares of Premier Oil. The Motley Fool UK has recommended BP and Royal Dutch Shell. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

But before we get too excited about any long-term price gains, the short-term reasons suggest caution is still needed. The fires raging across parts of Canada cut oil supplies by around a million barrels a day, and militant attacks in Nigeria have seriously damaged that country’s production capacity. The net result has been a 4.1m barrel fall in US inventories by the end of last week — though to put that into perspective, there’s still a stockpile of 537m barrels there.

Production cuts

There’s a growing consensus that production needs to be cut to get prices back to sustainably profitable levels, with OPEC, Russia, and others trying to bring about at least a freeze. And consumption has been strengthening, with even Chinese demand coming in ahead of bearish expectations.

A rising oil price will boost confidence in the 7.4% dividend yields expected from BP this year and next.The company has insisted it will keep them going, though that’s not a promise that can be open-ended. The same goes for Royal Dutch Shell, where analysts are forecasting a 7.5% yield. Shell hasn’t made any commitments, but I doubt it will want to cut its dividend while BP doesn’t.

Share price responses of the big two to recovering oil prices have been fairly muted, with BP shares up only 5% to 363p so far in 2016, though Shell shares are up 10% to 1,692p.

Too little, too late

At the other end of the scale, $50 oil could come too late for some. Gulf Keystone Petroleum springs to mind, as the ill-fated producer based in the Kurdistan region of Iraq is facing what could be insurmountable debt problems. A massive injection of cash is needed in the short term to keep the company going, and negotiations with bond holders could well end with a debt-for-equity swap that wipes out existing shareholders.

Covering the middle ground, producers like Premier Oil and Tullow Oil should be strengthened by every dollar added to the oil price. Both are carrying hefty debt piles, but appear to have sufficient headroom to get them through — and Premier had enough cash to snap up E.ON’s North Sea assets recently, adding to its cash-generative capacity. For its part, Tullow is expected to be in profit this year and next, another big boost. Premier Oil shares have almost quadrupled to 74p since this year’s low, with Tullow doubling to 238p.

Looking at the wider market, its seems ironic that the FTSE 100 has been rising along with the oil price, as most companies are net consumers of energy and should do better with lower prices. But cheap oil does seem to damage sentiment.

China looking good?

And could better-than-expected demand from China signal a bottoming out in its slowdown? China’s state-directed financial sector is hard to fathom, so there’s plenty of risk there. But if things are improving it will hopefully feed through to commodities like iron and copper, and miners like Rio Tinto and Antofagasta should benefit.

And sooner or later, even China-focused banks like HSBC Holdings and Standard Chartered could start to look attractive again… though I think they have some way to go yet.

The post What will $50 oil do for share prices? appeared first on The Motley Fool UK.

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• Down 10% this year, this S&P 500 banking giant looks super-cheap
• 4 FTSE 250 shares that could generate a 4-figure monthly second income
• As Diageo shares sink, this ‘opposite’ stock in the FTSE 250 is soaring 
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Alan Oscroft owns shares of Premier Oil. The Motley Fool UK has recommended BP, HSBC Holdings, Rio Tinto, and Royal Dutch Shell. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Although SSE’s earnings fell by 3.7% last year, they’re still higher than expectations and with it targeting a return to growth in the current financial year, its share price could rise. That’s especially the case since it trades on a price-to-earnings (P/E) ratio of only 13.6 and with a yield of 5.9%, SSE remains one of the higher yielding stocks in the FTSE 100. And due to it having a beta of 0.8, it could become increasingly popular among investors if market volatility remains high.

Tasty share

Also reporting today was Patisserie Holdings (LSE: CAKE). The owner of Patisserie Valerie reported a 20% rise in pre-tax profit in its half-year results, with it being able to deliver sales growth of 14% in a competitive trading environment. This has allowed Patisserie Holdings to pay a maiden interim dividend of 1p per share, which provides evidence of its confidence in the long-term growth prospects for the business.

With Patisserie Holdings maintaining a net cash position of £8.9m, it seems to be financially sound and has the financial firepower to open more stores following its 12 new sites opened in the first half of the year. New openings are likely to boost its bottom line and with Patisserie Holdings forecast to increase its earnings by 22% in the current year and by a further 14% next year, its price-to-earnings growth (PEG) ratio stands at just 1.5. This indicates that it offers excellent long-term growth prospects even after its shares have soared by 26% in the last year.

One to watch

Meanwhile, Gulf Keystone Petroleum (LSE: GKP) continues to have a relatively uncertain future. Its debt situation remains a concern for investors, with it stating last month that it had agreed a debt standstill ahead of a debt restructuring. And with it still being owed millions from past oil production, the outlook for the company’s bottom line is challenging.

Although Gulf Keystone Petroleum’s shares have risen by 15% in the last month, this is at least partly due to improved sentiment for the wider oil and gas sector. With the company’s risks being high due to its financial outlook as well as the continued risks of operating close to a major conflict zone, there seem to be superior risk/reward opportunities available elsewhere within the oil and gas sector.

Therefore, while positive news flow could cause investor sentiment to rapidly improve in the short term, Gulf Keystone Petroleum seems to be a stock to watch rather than buy at the present time.

The post Is it time to pile into Gulf Keystone Petroleum Limited, SSE plc and Patisserie Holdings plc? appeared first on The Motley Fool UK.

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• Down 10% this year, this S&P 500 banking giant looks super-cheap
• 4 FTSE 250 shares that could generate a 4-figure monthly second income
• As Diageo shares sink, this ‘opposite’ stock in the FTSE 250 is soaring 
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Peter Stephens owns shares of SSE. 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.

Looking ahead, Cape is expected to record a fall in its bottom line of 19% this year. This clearly has the potential to hurt investor sentiment in the short run, but with Cape’s net profit expected to flat line next year, investor sentiment may improve over the medium term. That’s especially the case since Cape’s current valuation indicates that it offers significant upward rerating potential, with it having a price to earnings (P/E) ratio of just 8.8. As such, far from being about to crash to zero, Cape could be a highly profitable investment in the long run.

Similarly, Antofagasta (LSE: ANTO) appears to have stunning long term potential. The copper, gold and molybdenum miner has pursued a sound strategy of becoming increasingly efficient through asset disposals and cost cutting, with it being in a relatively strong financial position through which to deal with the low ebb in commodity prices.

Certainly, Antofagasta’s bottom line is being hurt by the collapse in commodity prices, with its earnings having fallen in each of the last three years. However, looking ahead to the current financial year and beyond shows that it could be on the cusp of a successful turnaround.

For example, Antofagasta is expected to post a rise in its pretax profit of 40% in the current year, followed by a further gain of around 70% in earnings next year. This puts it on a price to earnings growth (PEG) ratio of just 0.8, which indicates that now could be a good time to buy a slice of the business while it has a relatively wide margin of safety.

Meanwhile, Gulf Keystone Petroleum (LSE: GKP) continues to endure a highly challenging period. Having fallen in value by 77% in 2015, its shares have declined by a further 72% since the turn of the year and have shown little evidence of mounting a successful comeback.

Clearly, a rising oil price could cause investor sentiment towards Gulf Keystone and the wider oil sector to improve. However, with Gulf Keystone being a relatively risky play due to its location and financial outlook, there seem to be more appealing risk/reward ratios on offer elsewhere within the oil and gas industry. Certainly, Gulf Keystone could turn its poor share price performance around, but at the present time its risks appear to outweigh its potential rewards.

The post Are Gulf Keystone Petroleum Limited, Cape plc & Antofagasta plc about to crash to zero? appeared first on The Motley Fool UK.

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Peter Stephens 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.