For those who spotted a bargain buying opportunity as the mining market started to recover last year, this is a great result.

For shareholders who bought into the story of Zanaga’s Republic of Congo iron ore deposit asset before the mining downturn, there’s less to celebrate. The shares are still worth 55% less than they were five years ago.

What comes next?

In my view, the outlook for investors in Zanaga is quite evenly balanced following recent share price gains. The company is no longer trying to head straight into the development of a very large mine. Instead it’s investigating the viability of a “small-scale early production start-up project”.

However, I suspect that the firm’s management doesn’t have much choice in its strategy. The group’s stake in the Zanaga asset is 49.99%. The remaining 50% plus one share is owned by FTSE 100 firm Glencore, which agreed to provide a budget for 2017 of up to $1.7m.

Given that Glencore is expected to report a net profit of $5,414m this year, the small size of this budget suggests to me that the larger firm is in no rush to develop Zanaga.

The dilemma facing would-be iron ore producers was made clear in its recent half-year results. Although global demand for iron ore has been “stronger than expected” this year, several large producers have increased their output. Stock levels at Chinese ports are said to remain high.

This could be a 2018 turnaround buy

It’s unclear to me how much value Zanaga shares are likely to offer. That’s why I’m inclined to favour an investment in Pressure Technologies (LSE: PRES).

This specialist engineering firm makes precision machined parts and high pressure gas cylinders for the defence, oil and gas and biogas energy sectors. It’s suffered in the oil downturn, but shares in the group rose by up to 13% this morning after management reported improved results for the year ended 30 September.

Revenue rose by 7.3% to £38.4m, while the group’s adjusted operating profit rose to £1.1m, more than reversing last year’s loss of £0.4m. Adjusted after-tax earnings also moved back into the black, rising to 6.3p per share, compared to a loss of 2.6p per share last year.

Although restructuring and acquisition costs meant that Pressure Technologies’ statutory (unadjusted) results still showed a loss, the firm does seem to have made some progress. I believe it should benefit further if the recent recovery in the oil price is maintained into 2018.

Follow the smart money?

Interestingly, the company reports that it was recently “approached by institutional investors” who wanted to make an additional investment in the group. Chairman Alan Wilson believes this reflects a widening view “that the oil and gas market is about to rebound”. The firm took advantage of this approach to raise £5m, strengthening its balance sheet.

It’s also worth noting that chief executive John Hayward has a 5.39% shareholding in the firm. I believe it’s fair to assume that his interests are closely aligned with those of private shareholders.

In my view, this stock has the potential to perform well and may be worth a closer look.

The post One small-cap stock I’d consider with Zanaga Iron Ore Co Ltd appeared first on The Motley Fool UK.

Pressure Technologies — which designs and manufactures high-pressure systems — advised that revenues had slumped 34% during the 12 months to September 2016, to £35.8m. As a result the engineer swung to a pre-tax loss of £359,000 from a profit of £1.1m in the prior year period.

And Pressure Technologies remains cautious looking ahead as the oil and gas sector could remain under the cosh despite last week’s OPEC accord. The business cited possible compliance issues from the cartel’s participants that could affect total output, as well as the impact of the deal in encouraging US producers to get back to work, a move that could hamper any oil price advances.

Pressure Technologies therefore elected to axe the dividend for fiscal 2016. And the firm is right to be conservative in my opinion. While it has ploughed huge time and money into its Manufacturing Divisions and Alternative Energy operations to diversify away from the oil sector, the engineering giant still sources more than four-tenths of total sales from crude drillers.

The City expects Pressure Technologies to snap back into the black with earnings of 8.8p per share in the period to September 2017. However, I believe these projections could significantly underwhelm and reckon a forward P/E ratio of 16.7 times fails to reflect this.

I believe investors should give Pressure Technologies short shrift at the present time.

Touchdown

Shares in touchscreen builder Zytronic (LSE: ZYT) were also under pressure on Tuesday after a lukewarm response to its preliminaries. The stock was last dealing 5% lower from Monday’s close, taking it away from recent seven-month peaks of 405p per share.

Zytronic advised that group revenues edged down to £21.1m during the 12 months to September 2016, falling from £21.3m in the 2015 fiscal period. And this prompted profit before tax to dip 4% to £4.3m.

However, Zytronic’s bottom-line weakness was prompted by a £900,000 hit caused by fair value movements on foreign exchange forward contracts.

Indeed, the screen star struck a somewhat upbeat tone looking ahead, advising that “the year has started well with orders, revenue and current trading ahead of the same period last year.” Zytronic advised that its strategy of targeting the larger-format touch sensor markets, like those used in the gaming industry, is paying off handsomely and sales of its touch sensor products grew 5% last year.

And the Newcastle firm’s confidence in its long-term outlook was underlined by its decision to turbocharge the full-year dividend — a total reward of 14.41p per share for fiscal 2016 is up 20% from 12.01p for the previous year.

The City certainly retains a bullish outlook for Zytronic, even if earnings growth is expected to slow from an 8% rise last year to a marginal increase in the period to September 2017. I reckon a P/E ratio of 14.4 times is attractive value as demand for Zytronic’s new suite of products takes off.

The post These small caps have dived following today’s updates. Is this a prime buying opportunity? appeared first on The Motley Fool UK.

As such, Sepura expects to report EBITDA of €17m, a flat performance versus the prior year. However, the delays in purchase orders, for which inventory has already been procured, as well as slower than expected receipts from customers who have previously paid to terms, means that Sepura’s net debt is expected to be relatively high at €119m.

Sepura said in its update that it’s subject to short-term cash constraints that the company expects will require an extension of its banking facilities and a waiver of a possible covenant breach at 30 June. Therefore, it’s in discussions with its lenders as well as with major shareholders regarding an equity capital raising of up to £50m to reduce leverage and provide the working capital required to support the development of the business.

Clearly, today’s update is hugely disappointing and while the shares have already fallen heavily, there could be further to go in the short run as investors digest the news. This means that while Sepura has maintained its full-year guidance, it may be prudent to await further news on its capital position before buying.

Under pressure

Also falling heavily today are shares in Pressure Technologies (LSE: PRES). They’re down by 24% following the release of a profit warning after a disappointing six months to 2 April.

As Pressure Technologies has highlighted in recent months, it faces difficult trading conditions in the oil and gas sector, with them continuing throughout the period. And with the business being highly dependent on that industry, there has been a substantial decline in orders during the second quarter, which has been complicated by unpredictable demand and very short lead times.

Looking ahead, Pressure Technologies expects a slow recovery in the oil and gas market, with high levels of inventory pushing back a pick-up in the sector. And with capital expenditure subject to further cuts, it looks unlikely that investment will pick up until 2017 at the earliest.

Clearly, today’s profit warning is hard news for investors to digest and while Pressure Technologies is making progress in terms of reducing costs via productivity improvements and headcount reductions, its outlook remains highly uncertain. Therefore, while its long-term prospects may be bright, things could get worse before they get better and it may be prudent to await a wider margin of safety or else evidence of improved trading conditions before piling-in.

The post Sepura plc and Pressure Technologies plc crash 20% on updates appeared first on The Motley Fool UK.

Tullow Oil

Tullow shares rose by 7% this morning, after the highly-regarded explorer announced a positive set of drilling results from the South Lokichar Basin in Kenya.

The firm said that the Etom-2 well in the South Lokichar Basin had found “102 metres of net oil pay in two columns”. The oil was described as high quality. The Etom-2 well was drilled using data gathered with 3D seismic after the Etom-1 well came up dry. This suggests to me that Tullow’s understanding of the local geology has improved, and that further discoveries could follow.

Tullow believes that the South Lokichar Basin could contain estimated mean gross resources of 600m barrels of oil. Following today’s news, the firm says it will evaluate further drilling opportunities in the Etom area.

Shares in Tullow Oil have fallen by 61% so far this year and are currently at 10-year lows. The firm’s $3.6bn net debt continues to concern me but today’s discovery is a reminder of how Tullow has discovered very significant assets in the past, and could quite easily do so again.

I’m not sure I’d rush to buy into Tullow today, but I think it’s definitely a stock to watch.

Pressure Technologies

Shares in Pressure Technologies rose by 8% to 196p this morning after the firm’s latest results came in ahead of expectations.

Adjusted earnings per share of 14.5p were ahead of the broker forecast for earnings of 13.6p per share. As expected, the dividend was maintained at 8.4p per share, giving a yield of 4.3%.

Net debt fell slightly to £7.1m and the firm’s decision to diversify away from the oil and gas sector by acquiring Quadscot appears to be paying dividends. Pressure’s Quadscot and Roota businesses contributed more than £5m of Pressure’s £7.9m of operating cash flow last year.

The group now says that the proportion of revenue from the oil and gas market has fallen from 73% to 59%. Current broker forecasts suggest 2016 earnings will rise to 16.0p per share, putting the shares on a forecast P/E of 12.3. That seems reasonable to me.

Although it does remain heavily exposed to the oil and gas market, Pressure appears to have genuine growth potential and could be a good medium-term recovery buy.

BAE Systems

BAE shares surged above 500p in late November, as the government announced plans for an extra £12bn of defence spending over the next 10 years. Some of the froth has come off the firm’s share price since then, but at the last-seen price of 488p, they remain up slightly so far this year.

Terrorism and increased military activity are of course good news for BAE, which is involved in building nuclear submarines, military aircraft and cyber security — three areas which are expected to benefit from future spending.

BAE shares now trade on 13 times 2015 forecast earnings, falling to 12.3 in 2016. The shares offer a 4.3% prospective dividend yield. In my view BAE remains an attractive long-term buy-and-hold stock for an income portfolio.

The post Are Tullow Oil plc, Pressure Technologies Plc & BAE Systems plc Top Buys For 2016? appeared first on The Motley Fool UK.

The reason for the leap — it’s up 33.5p, or 23%, to 180p as I write — is clear, as the firm has just released a full-year trading update that spoke of strong performances and indicated that adjusted EBIT will be “slightly ahead of market expectations“.

Now that’s not exactly unbridled ebullience, and Pressure Technologies shareholders have had a rough ride over the past few years. In fact, the shares were commanding around 770p apiece at their peak in the summer of 2014. So if you’d bought then you’d be sitting on a 77% loss even after today’s spike, with the market cap of the AIM-listed firm today standing at a relatively low £26m.

It is, of course, all down to the carnage in the oil and gas business. Pressure Technologies describes itself as a specialist “in technology for the containment and control of liquids and gases in pressure systems“, and started life as a maker of high pressure seamless steel gas cylinders. Since then it has expanded through acquisition, coming to market in 2007. The company was doing well, and then the oil shock hit.

An oversold bargain?

With Brent Crude down around $48 a barrel, from above $110 in June 2014, the oil and gas industry has severely cut back on capital expenditure and has been shelving a lot of its exploration plans. And that’s had a severe knock-on effect on the picks-and-shovels firms, like Pressure Technologies, that supply the big players.

As a result, that’s led to forecasts for a drop in EPS of almost 70% this year, which looks like a crashing disappointment compared to the doubling we saw in the year to September 2014. But that expected drop puts the shares on a prospective P/E of 12.5 for the year just ended, and that’s before taking into account the latest news suggesting that EPS is set to come in ahead of expectations.

At the halfway stage, Pressure Technologies recorded net debt of £7.5m after having had net cash of £5.8m six months previously, and that will cause some anxiety — but according to the latest, the debt position has improved since then with the group being “strongly cash generative in the second half“. The company’s facility with Lloyds Banking Group looks solid, and with the interim dividend being left unchanged as expected, the expected full-year dividend of 8.4p is surely safe — it would be covered by earnings and would yield 4.7% on the latest share price.

Back to growth!

Earnings were already predicted to be back to growth next year with a 20% boost on the cards (which would drop the P/E to a little over 10), and I’d be surprised if newer forecasts don’t improve on that now.

Pressure Technologies says it should be “in a strong position when the market returns“, and to me it’s looking like a convincing proposition at the moment — and it could reward investors well over the next few years.

The post Why Pressure Technologies Plc Has Soared 25% Today appeared first on The Motley Fool UK.