For long-term investors, this could represent a buying opportunity. With that in mind, here are two shares which could deliver improving share price performance due to their low valuations.

Changing business

Reporting on Monday was oil and gas engineering services business Plexus (LSE: POS). The company reported its interim results, which showed that it is experiencing a period of major transition. The business has been through a period of low activity levels in recent years, and this has put significant pressure on its financial performance.

In the six months to 31 December, those difficulties continued. As such, dividends remain suspended and the near-term prospects for the company appear to be challenging. For example, in the current financial year it is expected to record a net loss for the third consecutive year.

However, Plexus could have recovery potential. The company recently sold its jack-up exploration application business, and this may provide it with the capital to focus on other areas that could offer strong growth. And with the oil price having risen, activity levels across the oil and gas industry could increase.

Certainly, the stock is high risk at the present time. Its share price could be volatile and come under pressure. However, with the potential for growth across the industry and its shares now being priced at 75% less than they were five years ago, a turnaround opportunity could be on offer.

Improving outlook

Also offering growth potential within the oil and gas sector is Wood Group (LSE: WG). The energy services company has experienced a difficult period, with its bottom line falling in each of the last two years. This has been at least partly due to the lower oil price which has caused oil producers to cut back on exploration spending.

However, Wood Group has been able to capitalise on lower valuations across the industry via its combination with Amec Foster Wheeler. This could provide it with a stronger foundation for growth and lead to a more robust outlook for the business. And with its bottom line due to return to positive growth in the current year, its prospects appear to be improving.

Looking ahead, Wood Group is expected to report a rise in its bottom line of 23% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.5, which suggests that it offers a wide margin of safety. Therefore, with the prospects for the oil and gas industry on the up, now could be the perfect time to buy it for the long run.

The post 2 growth stocks trading at deep-value prices appeared first on The Motley Fool UK.

The market got excited when the company discovered significant reserves in licensed areas on the Rona Ridge, west of the Shetland Islands, but expectations were tempered by massive funding requirements needed to access the fractured basement reserves. Some analysts claim the company is sitting on the largest oil discovery beneath UK waters this century.

I’ve no doubt the firm has incredible potential if it can get the oil flowing, but in my experience this is rarely a straightforward task. Hurricane estimates that first oil will be achieved in 2019, but that leaves two years of operational development that could go awry before investors begin to benefit from those massive reserves. 

The company has already raised $547m to fund Lancaster and other discoveries. $220m of this was raised by bonds with 7.5% p.a coupon, amounting to a yearly $16.5m cost. The company spent a further $87.2m on “intangible exploration and evaluation assets” in the first half of this year alone. I worry this significant cash burn could erode that massive cash pile fast.

Furthermore, Edison Investment Research has estimated it will cost the company just shy of $200m to reach first oil via the Early Production System (EPS), although around $2.3bn could be needed for a full field development. A delay in the EPS could easily lead to another dilutive fundraiser. 

I can’t justify investing in a £560m company that has yet to sell a barrel of oil, although I can understand why investors are willing to take on the risk given the best-case estimate of 2.326bn stock tank barrels at Lancaster. If all goes off without a hitch, riches will surely be there. I’m deeply sceptical that they will, however. 

POS-GRIP potential

I’ll also be avoiding oil services specialists Plexus Holdings (LSE: POS). 

The company has struggled in the low-oil-price environment and swung from a £5.4m operating profit in 2015 to a £6.8m loss last year. Unlike Hurricane Energy, the oil industry at large has toned down capital expenditure so its been tougher for Plexus to sell its proprietary POS-GRIP wellhead device. 

The company recently sold its Jack-Up business to FMC Technologies Limited for £15m, with an additional sum of up to £27.5m payable dependent on the future performance during a three-year earn-out period, so its balance sheet looks secure despite high fixed costs. 

Plexus also signed a Collaboration Agreement with FMS which “establishes a framework to work together both on the development of existing POS-GRIP IP for applications outside of jack-up exploration, as well as future new technologies.”

The company’s strategy rests on increasing awareness of its POS-GRIP system, which it says improves safety and saves on both time and cost for users.

The company has already sold the system to illustrious companies such as Shell, BHP Billiton, ConocoPhillips and a number of other blue-chip clients, but regardless has struggled to post impressive results.

If the company is struggling despite such clientele, I don’t really see how this strategy will pay off. That’s why I’m steering clear of the business. 

The post Why I’d avoid Hurricane Energy plc and this value stock appeared first on The Motley Fool UK.

Looking ahead, the price of oil seems likely to remain relatively low in the short-to-medium term. Certainly, there’s potential for it to rise in the long run as demand from emerging economies increases and supply stabilises. However, in the short run things could get worse before they get better for Plexus and its share price could come under a degree of pressure.

With Plexus forecast to post losses in both the current year and next year, its outlook is rather downbeat. And with there being a number of other oil and gas companies that are profitable and offering good value for money, there appear to be better options available elsewhere.

Gold standard

While Plexus’s share price has been falling this year, shares in Highland Gold (LSE: HGM) have soared by around 60%. A key reason for this is the rising price of gold, with a changing stance from the US Federal Reserve being a key reason for this.

While the Fed had previously been expected to raise US interest rates up to four times this year, it’s now expected to do so just once or maybe twice. This means that non-interest-producing assets such as gold should hold greater appeal and as such, its price has strengthened.

Clearly, Highland Gold’s share price is highly dependent on the price of gold and with uncertainty surrounding the global economy being high, it would be of little surprise for the precious metal to continue to rise. Therefore, against this backdrop and with Highland Gold expected to increase its earnings by 47% next year and its shares trading on a price-to-earnings-growth (PEG) ratio of only 0.1, it seems to offer a very enticing risk/reward ratio.

Risky but rewarding

Meanwhile, shares in 88 Energy (LSE: 88E) have soared in 2016. They’ve risen by 348% year-to-date after the company reported a major discovery in Alaska, with that boosting investor sentiment in the stock due to the potential for significant production in future. And with news flow since then being positive in terms of 88 Energy announcing an increase to the independent resource estimate at the Icewine project, it’s little wonder its shares have been in demand – as evidenced by the oversubscribed share placing a few weeks ago.

While the potential rewards of investing in 88 Energy are considerable, it remains a relatively risky stock. Certainly, it has had positive news flow in recent months but this can change quickly and with 88 Energy likely to require further fundraising, it may only be of interest to less risk-averse investors.

The post Are 88 Energy Ltd, Highland Gold Mining Ltd and Plexus Holdings plc too risky to buy? appeared first on The Motley Fool UK.

Payouts unsustainable

But although the oil price has made a strong recovery since mid-February, the medium-term outlook is less optimistic. Further gains in the oil price will likely be limited without more substantial cuts to global supply, which just do not seem likely given the failure of OPEC to reach an agreement on a production freeze.

What’s worse, Shell’s downstream profitability appears to have already peaked. In the first quarter of 2016, the company’s downstream earnings fell by almost a quarter against the same period last year. Bigger refining margins have acted as a cushion against weak upstream profits, but this cushioning effect seems to be fast shrinking. And unless upstream earnings bounce back more strongly than analysts currently expect, Shell’s earnings could yet have further to fall.

Today’s share price sees the dividend currently yielding 7.6%. But with earnings cover set to fall below 0.5x this year — ie, less than half of what is needed to fund its dividend, continued shareholder payouts at current levels don’t seem sustainable for much longer. The only way Shell can afford to maintain its payout without raising debt is to sell more assets. That’s akin to selling the family silver, and could worsen future dividend security by hurting free cash flow generation in the longer term.

Better energy plays

Instead, investing in oilfield service stocks could be a better play on the energy sector. This is because although cuts in capital spending by oil producers have hurt the sector, rising global demand for energy is expected to drive continued growth in global oil and gas development in the longer term.

Petrofac (LSE: PFC) is a value play in the sector, with its shares trading at 9.3 times expected earnings this year. The company is also a less risky play, because its focus on the Middle East has spared it from the worst of the spending cuts. Relatively low production costs in the region meant investment levels have held up and Petrofac managed to lift its order book to record high of $20.7bn this year.

At a share price of 815p, Petrofac’s dividend yield stands at 5.7%. That’s lower than Shell’s yield but, unlike the oil major, Petrofac’s dividend is well covered. Earnings this year are expected to cover its dividend 1.9 times, which suggests not only that the dividend is secure, but that there may also be opportunity for an increase in shareholder payouts this year.

An alternative play on the sector is Plexus Holdings (LSE: POS). The firm has seen the value of its shares drop by almost two-thirds over the past year, but its longer term fundamentals seem attractive. The Aberdeen-based firm owns an innovative proprietary well-head system that is more reliable and requires less maintenance than the type its competitors use. This gives it a competitive advantage and allows it to generate much wider operating margins than the industry average.

The company is worth a closer look for investors that are willing to tolerate a little more risk.

The post Is it time to get back into Royal Dutch Shell plc, Petrofac Limited & Plexus Holdings plc? appeared first on The Motley Fool UK.

Shares in financial services company Atlas Mara (LSE: ATMA) have risen by around 15% today after it confirmed it has had discussions with a consortium of investors regarding the potential acquisition of Barclays’ stake in Barclays Africa. Barclays’ 62% stake is set to be reduced as part of a new strategy by the bank’s new management team and with Atlas Mara’s management supporting the exploration of a potential combination between the two companies, a deal could be on the cards.

This could be a sound move for Atlas Mara, since the company — which which was co-founded by former Barclays’ CEO Bob Diamond — is intent on building up its sub-Saharan presence, and a combination with Barclays Africa could have a positive impact on accelerating that process. Clearly, there is no guarantee that any combination will be effected, but the potential for it could lead to further gains in Atlas Mara’s share price in the short run. And with Africa offering significant long term growth potential within the financial services space, the company could be worth a closer look for less risk averse investors.

Upbeat

Also among the major movers today is Plexus (LSE: POS), with the oil and gas engineering services company raising $5m through a subscription deal with Russian oil and gas equipment maker LLC Gusar. This will involve Plexus issuing 6.8m shares at 52.05p per share, and at the same time as the subscription, Plexus, Gusar and Konar have also entered into a commercial agreement under which Plexus will work with them to finalise an additional licence agreement to enter Russia’s larger and more active surface land and platform production well-head equipment markets.

Clearly, the market is upbeat about today’s news, with Plexus’s shares moving 8% higher. The subscription agreement should enable Plexus to fast-track its entry into Russia’s large and important oil and gas production sector and further diversifies its revenues away from its traditional North Sea jack-up exploration market. As such, it could have a positive impact on Plexus’x future share price performance and for long term investors who can live with above average risk, Plexus could prove to be a sound buy.

Volatile

Meanwhile, shares in Redt Energy (LSE: RED) have slumped by 15% today despite it reporting a €700k profit for the 2015 financial year. This is a significant improvement on last year’s €2.2m loss and was largely due to a rise in revenue from €5.6m in 2014 to €11.1m in 2015, with it successfully shifting towards a pure play energy storage business.

However, the market seems to have reacted negatively to Redt Energy’s decision to take the commercialisation of its energy storage system step-by-step, and to try and avoid falling into the trap of selling a product that is not market-ready. As such, the company’s profitability growth may be slower than many investors had anticipated, although Redt continues to believe that there is latent demand for a storage system that performs reliably and economically. As such, it could be worth a closer look for less risk averse investors, although its shares may remain volatile in the short run.

The post Why Atlas Mara Ltd, Plexus Holdings plc and Redt Energy plc are among today’s top movers! appeared first on The Motley Fool UK.

An exciting year ahead

The release of the company’s full-year results could be the reason for this upturn in fortune for AFC’s share price. Although there appears to have been some profit taking immediately following the release, AFC’s results showed that the company continues to make encouraging progress. For example, last year it successfully tested multiple fuel cell stacks and completed milestone 10 of its POWER-UP programme. Furthermore, AFC has also signed heads of agreements with manufacturers and recently raised £3.6m through an oversubscribed placing.

Looking ahead, AFC is focused on the delivery of international contracts for the deployment of its fuel cell system and also on enhancing the operability of its fuel cell system. As such, 2016 could be another exciting year for the company and with cleaner fuels likely to become a more important part of the energy mix, AFC could be a worthwhile buy for less risk averse investors.

Better options elsewhere

Also rising today were shares in oil and gas engineering services business Plexus (LSE: POS) — they increased by 11%. Although there has been no significant news released by the company, its shares have soared by 26% in the last week alone. The latest piece of news released by the company was its interim results at the end of March where it outlined a plan to suspend dividend payments given the sharp reduction in exploration activity across the oil and gas sector.

While this may not be popular with many investors in the short run, the decision to suspend dividends seems to be a sensible one. That’s because it will help to shore up the financial standing of the business and could lead to a stronger company in the long run.

Looking ahead, Plexus is forecast to move into the red in the current year and to remain so in the following year. While it has the potential to turn its fortunes around, there appear to be better options available elsewhere in the oil and gas sector. Therefore, despite its recent share price run, Plexus does not seem to offer a sufficiently appealing risk/reward ratio to merit investment right now.7

On track to deliver

Meanwhile, shares in Iofina (LSE: IOF) were also among the major movers today, with them closing up a whopping 50%. This seems to be a carryover of yesterday’s performance when Iofina also rose significantly following the release of its first quarter update. It showed that the iodine explorer and producer remains on track to deliver its production guidance for the first-half of the year, with costs encouragingly being lower.

Looking ahead, Iofina’s dramatic share price rise could continue in the short run, although such a significant rise could also trigger a degree of profit taking. With Iofina forecast to move into profitability in the next financial year, investor sentiment could improve, although it remains a small and relatively high risk purchase at the present time.

The post Why Iofina plc, AFC Energy plc And Plexus Holdings PLC Are Among Today’s Major Movers appeared first on The Motley Fool UK.

In a fresh update this morning, 88 Energy said that the permeability of core samples taken from the Icewine#1 well on the North Slope of Alaska was “20 times better than pre-drill forecasts”. Apparently, the core samples had permeability reads that were “too high to be measured using the traditional method” for shale rocks.

Dave Wall, 88 Energy’s Managing Director, described these permeability numbers as “super highways”. In today’s update, Mr Wall said that these results add to previous analysis and suggest that despite being a tight oil play, Icewine could provide “production rates more akin to those normally experienced in conventional wells”.

This news may sound impressive, but I’m not sure it really adds much to previous updates. No new figures were provided today. It’s too early to say what the production potential might be.

There are also some risks. We know from a September presentation that 88 Energy plans to raise new funding or secure a farm-out partner in 2016. This is likely to dilute existing shareholders.

Another concern is that 88 Energy’s exploration costs will rise sharply in July, when the tax rebate available for exploration in Alaska falls from 75% to 35%.

My cautious view seems to be shared by the market, as 88 Energy’s share price hasn’t really moved this morning. In my view, this might be a good time to lock in some profits.

How to time this recovery play

Shares in wellhead technology manufacturer Plexus Holdings (LSE: POS) fell by 6% this morning. The firm reported a £3.5m loss for the six months to 31 December and said it would suspend dividend payments.

Sales halved from £13.5m to £6.8m during the second half of last year, but the group was able to raise £8m from new investor Jereh China through a placing of new shares. This has left Plexus with a cash balance of £10.5m and net cash of £4.4m.

I’m confident that Plexus will survive, as its POS-GRIP wellhead technology is used and respected by many major operators. However, short-term exploration activity in the North Sea — a key market — is expected to fall by 90%, according to Plexus. The firm is targeting markets further afield, but so far sales have been limited.

Plexus shares are now down by around 85% from their 2014 high. Multi-bagging gains are possible when a recovery starts, but the short-term outlook is poor. I suspect it may still be a little too early to buy.

Get paid while you wait

If you want exposure to the oil and gas sector without too much risk, I believe that BP (LSE: BP) could be a good option.

BP appears to be committed to maintaining its dividend, which currently offers a forecast yield of 7.9%. The group’s costs have fallen sharply and I suspect that when the oil market does start to recover, BP shares could easily rise by about 20%.

If I’m right, then an investment in BP could deliver a total return of about 35% over the next 2-3 years, at fairly low risk. I’ve bought some myself and believe that BP looks a good buy at the moment.

The post Should You Play Safe With BP plc Or Buy 88 Energy Ltd And Plexus Holdings PLC? appeared first on The Motley Fool UK.

A canary in the coal mine?

Some may remember the origin of the canary in a coal mine. The metaphor originates from the times when miners used to carry caged canaries while at work. If there was any methane or carbon monoxide in the mine, the canary would die before the levels of the gas reached those hazardous to humans.

Now before I type any further, I should warn readers that it can be a dangerous, not to mention expensive, game to forecast the prospects of other companies based on the reports of others. However, in this case, I think it’s worth exploring further.

While sat at my trading desk on Monday, I read a trading update from Plexus Holdings (LSE: POS) a smaller player in the Oil & Gas Related Equipment and Services sector. Now, while this company may be small, it does have some market-leading technology in the Python Sub-sea wellhead and its POS-GRIP products. These are supported by much larger companies such as BG Group, Total and Maersk. It also has a licensing agreement with major Chinese oil and gas manufacturing company Yantai Jereh Oilfield Services Group Co. to help distribute and market its POS-GRIP products to the wider global market.

Management reported that since the year-end, and in light of the weakness in the oil price, there was an increasing number of projects that were either delayed, postponed or cancelled. Accordingly, management expected earnings to be very significantly below market expectations. As you may expect, the shares fell out of bed, and despite a small recovery yesterday they’re less than half the price that they closed at on Friday.

A sign of things to come?

As we can see from the chart below, the only share under review here to outperform the FTSE 100 is Petrofac (LSE: PFC), however over a three-year period it’s on par with Amec Foster Wheeler (LSE: AMFW), both underperforming by over 50%.

It probably won’t come as any surprise to find that both companies are among some of the cheapest (on a 12-month forecast P/E basis) on the market. Both trade on multiples between seven and eight times forecast earnings, compared to the FTSE 100 forecast of around 15 times expected earnings according to data from Stockopedia.

That says to me that the market is worried that (like we have seen at Plexus) expected earnings could be subject to downgrades going forward, which in this market would surely send the shares in the wrong direction.

However, the opposite would be true should these companies manage to maintain expectations. Let’s not forget that these are businesses with size and scale, and with a steady hand they should be able to navigate the downturn.

Add into the mix the 5%-plus dividend yield on offer from both companies and it’s simple to see the attraction, despite the pessimism in the sector currently.

The post Is There Trouble Ahead For Petrofac Limited & Amec Foster Wheeler plc Following A Warning From Minnow Plexus Holdings plc? appeared first on The Motley Fool UK.

Looking ahead, Plexus is shifting its strategy and will focus on cutting costs, reducing investment and also improving cash conversion to shore up its financial position. This seems to be a sound response to what are unprecedented trading conditions and despite such an environment, Plexus continues to be in discussions regarding a number of potentially significant projects worldwide. As such, its long-term outlook may still be relatively positive.

Clearly, Plexus is undergoing a very challenging period at the present time and with the potential for further falls in its valuation as the market adjusts to expectations in the short run, it appears to be a stock to watch rather than buy.

Think positive

Also reporting today is Ophir Energy (LSE: OPHR). Its shares have risen by 6% for two main reasons. Firstly, it has signed a Heads of Terms with Schlumberger for the latter to become an upstream partner in the former’s Fortuna FLNG project in Equatorial Guinea. This is positive news because it shows that the project is making progress despite challenging operating conditions, and it also helps to free up Ophir’s balance sheet and improve its financial flexibility.

Secondly, Ophir announced a relatively positive trading update that showed production in 2015 was higher than anticipated at 13,000 barrels of oil equivalent per day (boepd). And with Ophir having a net cash position of $360m and a low-cost production base that is cash generative materially below current commodity prices, its outlook appears to be rather positive. Certainly, Ophir is expected to remain lossmaking in 2016, but it could prove to be a sound, albeit risky, buy for the long term.

Worth the risk?

Meanwhile, Amec Foster Wheeler (LSE: AMFW) also continues to experience difficult trading conditions, with its second half update (released in November) stating that it has refreshed its strategy in response to an uncertain outlook. As such, the company has increased its cost-cutting targets, reduced future dividend payments by 50% and will focus on exiting low growth areas.

With Amec Foster Wheeler’s bottom line due to flatline this year, investor sentiment could remain weak following the 51% decline in the company’s share price during the last six months. However, with Amec Foster Wheeler trading on a price-to-earnings (P/E) ratio of just 6.5, it’s dirt cheap and for less risk-averse investors it seems to be a very strong buy for the long term.

The post Are Plexus Holdings PLC, Ophir Energy Plc And Amec Foster Wheeler PLC Too Risky To Buy After Recent Updates? appeared first on The Motley Fool UK.

Part of the reason for such strong share price gains has been record financial performance by the company. For example, in its most recent interim results 32Red reported total net gaming revenue which was 22% higher than the same period from the previous year. And with the recent acquisition of Roxy Palace, 32Red appears to have further top and bottom line growth ahead of it over the medium term.

In fact, in the current year 32Red is forecast to increase its bottom line by 62%. With the company’s shares trading on a price to earnings (P/E) ratio of 20.2, this equates to a price to earnings growth (PEG) ratio of just 0.3. This indicates that today’s large fall in its share price is unlikely to continue and, for less risk averse investors, 32Red could be a profitable buy in the long run.

Also falling today are shares in Plexus (LSE: POS), with the oil and gas engineering specialist posting a fall in its valuation of over 11%. As with 32Red, no specific news flow has been released by the company to warrant such a fall, although Plexus has been hit hard by a declining oil price in recent months which has sent its shares lower by 46% in the last six months.

Despite this weakening of investor sentiment, Plexus is still expected to post strong growth numbers in the current financial year. In fact, its bottom line is due to rise by 57% this year and this puts it on a PEG ratio of just 0.3. Certainly, the outlook for the oil and gas industry remains uncertain, but with Plexus having a niche product which has excellent long term growth prospects, now could be a good time for less risk-averse investors to buy a slice of it.

Moreover with the company increasing its final dividend by 182% in the most recent financial year, it appears to be confident in its long term prospects and in its financial standing.

Meanwhile, mobile payments solution provider Monitise (LSE: MONI) continues to fall, with its shares down by another 6% today to make it a fall of 88% in the last year. And until the company can show a clear path to profitability which is backed by the market, it would be of little surprise for its shares to continue their slide.

Of course, Monitise has endured a highly challenging period which has included management changes as well as disappointing financial performance. However, it still has a very appealing product and a list of blue-chip customers which means that it continues to have turnaround potential.

The problem, though, is the length of time it is taking for Monitise to transition from a great product to a great business with a black bottom line. And with a pretax loss of £27m forecast for the current financial year, it appears as though things could get worse before they get better for Monitise.

The post Will Monitise Plc, 32Red Plc And Plexus Holdings PLC Return To Share Price Growth? appeared first on The Motley Fool UK.