Today I am running the rule over three recent London-listed chargers.
February flyer
Engine builder Rolls-Royce (LSE: RR) somewhat surprisingly emerged February as one of the month’s major winners, the stock gaining 22% in value during the period.
Investors became giddy that a widely-predicted profit warning failed to materialise, news which also prompted vast amounts of short-covering from traders expecting catastrophic results. As such, I feel that Rolls-Royce’s monster surge could potentially leave it at the mercy of a stinging reversal.
Indeed, the engineer’s decision to halve the dividend for 2015 to 7.1p per share — and warn of a similar reduction in the interim dividend — illustrates the colossal stress of reduced oil industry expenditure and slowing Trent engine demand on its balance sheet.
Besides, Rolls-Royce has issued almost half a dozen profit warnings over the past two years as revenues across its Marine and Civil Aerospace divisions have moderated. And as these markets look likely to keep struggling, I reckon investors hoping the worst could be over at the engineering giant could be sorely disappointed.
Copper climber
Copper mining colossus Antofagasta (LSE: ANTO) also enjoyed a solid share price surge in February, the share advancing 30% during the period as commodity values stabilised.
But like Rolls-Royce, shares across the resources sector have bounced on the back of traders with short positions dashing to cover losses. Indeed, seven of the FTSE 100’s best performers last month are involved in the business of energy or metals production.
Antofagasta enjoyed the fruits of a recovering red metal price, with copper futures at the London Metal Exchange bumping from January’s multi-year troughs below $4,350 per tonne. Prices were recently dealing above the $4,700 marker, their loftiest since November.
However, I believe a prolonged move higher remains in the realm of fantasy. Chinese manufacturing PMI data skidded to 49 in February, data showed today, the seventh ‘recessionary’ number on the trot. Meanwhile major producers the world over — Antofagasta included — remain determined to ramp up output and keep swamping the market with unwanted material.
Against this backcloth I wouldn’t bet on Antofagasta enjoying a lasting share price ascent.
Pumping higher
Without doubt oil explorer 88 Energy (LSE: 88E) was the stand-out stock last month, its share price surging by almost 600% in February.
Market appetite ignited following positive drilling data at the firm’s Icewine #1 asset in Alaska. 88 Energy advised in an update yesterday that results “continue to deliver at or above pre-drill expectations,” the business describing the project as containing “world class resource prize potential.“
88 Energy now plans to launch its ‘Project Icewine Seismic’ survey programme by mid-March. A contractor has been selected and the business is in the process of securing final funding.
But there are still plenty of potential flies in the ointment — 88 Energy still has to raise the necessary funds to keep exploration moving, of course, while the possibility of prolonged crude price weakness could still render the project economically unviable.
While further testing news could keep 88 Energy’s stock price surging into March and possibly beyond, investors should be wary of the high levels of risk associated with the risky business of oil exploration, particularly those already experiencing massive volatility.