These FTSE 250 rockets have put on an impressive display to soar 60% in the past 12 months, but can the fireworks continue?
Life’s a gas
Kazakhstan-focused multi-field oil and gas company Nostrum Oil & Gas (LSE: NOG) has hit the highs lately. Like other companies in the sector, it was given a lift by the OPEC and non-OPEC production cuts at the end of last year, but unlike many of them, it has held onto its gains even as oil has slipped back to around $50 a barrel.
Nostrum’s Q1 results, published last month showed revenues leaping 51% from $73.9m to $111.9m year-on-year, the strongest in more than 12 months, with net operating cash flows soaring from $27m to $69.8m. That partly explains its successful share price showing, as does rising production, a slight dip in net debt to $841.3m and a 21.5% improvement in its closing cash position to $122.8m.Â
The $50 question
It isn’t hard to see Nostrum’s appeal to investors: operating costs of less than $4 per barrel give it handsome margins. Management is nonetheless determined to keep the lid on operating costs to brace against sub-$50 a barrel oil, putting it in a much stronger position than many oil stocks.
The outlook seems promising, with its KazTransOil (KTO) pipeline connection set to complete and analysts predicting revenues of £372m this year, rising to £578m in 2018. If correct, earnings per share (EPS) could rise a whopping 257% next year. Forecasters expect its valuation to fall from 34.8 times earnings to just 9.8 times. I am wary of oil stocks at the moment, amid signs that OPEC members are starting to cheat on production cuts, but Nostrum looks like an honourable exception.
Indivior-ism
Speciality pharmaceuticals business Indivior (LSE: INDV) is also up 60% over the past year, although share price growth has slowed in recent months. The £2.33bn company specialises in addiction treatment, where it has 20 years of experience, and investors have been attracted by its strong market position and product pipeline.
However, the company has run into controversy, with 35 US states filing a joint civil complaint over its conduct with its heroin replacement Suboxone product, after it allegedly switched treatment from tablet to film formulation to block the introduction of generic alternatives. It incurred a $220m litigation charge in Q3 that knocked pre-tax profit from $258m to $98m, dampening share price growth.
Film star
Indivior nonetheless expects full-year 2017 net revenues of between $1.05bn and $1.08bn, buoyed by a rapidly rising treatment market and strong product pipeline. Q1 results show a solid business with resilient sales of Suboxone film, and net revenue rising 3% to $265m.
Management is in talks with the Department of Justice about a possible resolution to its litigation investigation and is also awaiting the outcome of patent challenge trials with Dr Reddy’s, Actavis and Par. It otherwise looks healthy with operating profit up 27% to $128m and net cash of $182m. I expect Indivior’s recent share price sogginess to continue as litigation threats drag on and forecasters predict EPS will drop 8% this year, then rebound 5% in 2018, but the long-term looks more promising.