Bubbling up

Fevertree Drinks (LSE: FEVR) has been one of the most successful stocks on the London market in the last two years. Since the company had its initial public offering in November 2014 the shares have risen by a whopping 470%. Interim results released in July are evidence of the explosive growth this stock has seen. Revenue was up 69%, earnings per share was up 89% and the interim dividend was almost doubled to 1.54p. 

Many investors have been put off the stock by the high price-to-earnings ratio and minuscule dividend yield. However, paying 83 times earnings for a growth stock like Fevertree isn’t completely unheard of. Many of the highly successful tech companies in the US have traded on price-to-earnings ratios of over 80.

With its growth potential, City analysts seem to think that Fevertree is fairly valued at the current price. This would seem to be a viewed held by the founders of the company too. Both Charles Rolls and Timothy Warrillow sold shares this year netting a cool £17.7m between the two of them. Yet this to me is a bit of a red flag to be honest and I would be wary if the founders sell further shares any time soon.  

Low cost production

Ithaca Energy (LSE: IAE) has been recovering well this year after a tough time in 2015. The shares are up 172% since 1 January this year and show no signs of stopping anytime soon. The recently released Q3 operational update shows that Ithaca is continuing to lower costs and work on asset profitability. The company produced 9,900 boepd (47% liquids) which was ahead of the 9,000 boepd target for the quarter. 

The key value lever for Ithaca in the short term is first oil at the Stella field in the North Sea. First oil is expected in November and a rapid ramp up in production should see the company reach an annualised production rate of approximately 16,000 boepd. This should drive the operating cost per barrel below the $20 mark and boost revenue and profits. In August, CEO Les Thomas said “production is running ahead of guidance, operating costs have been further reduced and we have continued deleveraging the business.” 

Ithaca has performed very well in the first half of 2016 and in the next few months the much anticipated Stella field will come online. First oil has been delayed multiple times but next year should be transformational for Ithaca. It plans to continue to pay off debt and deleverage the balance sheet. This plan should be good for shareholders as the business equity price should increase if oil stays above the $45 per barrel mark. 

More reading

Jack Dingwall 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.

Commodity giant

Glencore (LSE: GLEN) has been under the spotlight for over a year now. Commodity prices across the board fell sharply, which dragged the share price of Glencore down to all-time lows. However, since then the company has done a lot counter criticism of its business and it has come a long way since City analysts were saying it could go to zero. Since 1 January the share price has climbed 125% and analysts are now tagging the stock with price targets over 250p. The company has looked at the issue of its debt pile and divested a number of assets to pay off debt. I believe that the major mining company could be a good way to ride strengthening commodity prices that many expect in the next few years. The stock is coming from a very low price so it could see an explosive price rise soon. 

Defensive pharma

GlaxoSmithKline (LSE: GSK) is a favorite of UK income fund managers and quite rightly so. It holds great defensive qualities and I believe it has less risk than its FTSE 100 peer AstraZeneca. Glaxo shares are currently yielding over 4%, which is a decent income considering we live in a world of low interest rates. For income investors this looks like a top stock to own for its dividend and growth potential. The pipeline of new drugs that Glaxo has is very encouraging and the company believes there could be multiple blockbuster drugs on the way. This pipeline will add to profitability for the firm. While currently the shares are trading on 17 times forward price-to-earnings, Glaxo looks set to reap the rewards of its R&D success and I think the shares look cheap. 

UK housebuilding play

Persimmon (LSE: PSN) is about to become a great income stock due to the huge dividend scheme the company is about to begin. The shares are on a yield of over 5% and have nearly recovered since the Brexit vote shock. The UK has a fundamental housing shortage, which was addressed by Chancellor Philip Hammond this week. When setting out his new £5bn housing fund he said “my message today is clear: it’s time to get building”. This fund is for small businesses to build 25,000 homes by 2020 and 225,000 in the longer term. This is a clear indication that the housebuilding sector in the UK has a lot of work to do. Persimmon is a great way to play housebuilding in the UK and receive some income at the same time. 

I believe that these three giants will provide investors with good capital growth over the next few years and should outperform the wider market. In the case of Glaxo and Persimmon, investors will receive some chunky dividend payouts too. 

More reading

Jack Dingwall has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Weak US jobs data

While unemployment rates in the US are hanging around the 4.9% mark it’s the non-farm payroll data that’s receiving most of the attention. The Federal Reserve was poised to raise rates but sluggish non-farm payroll data has quashed an interest rate rise this summer. In August the US created 151,000 jobs, which was under the 180,000 forecast and put a damper on the two previous months of good growth. US manufacturing also shrank in December, which added weight to the argument that the US economy is slowing. If the US slips into recession next year then it’s likely that the world economy will be dragged lower too. 

Chinese slowdown

Although China has fallen out of the news since February it’s still a worrying situation. GDP data does look promising but analysts pointed out that this growth was driven by government stimulus rather than expansion in the private sector. Private sector investment was actually down 3.8% in the half of 2016. China remains a key part of the complex global economic landscape and any further slowdown in China would have serious knock-on effects in the US and the rest of the world. I think all investors should have one eye on China at all times. 

Debt crisis

I think it’s fair to say that in the last few decades the world has gone debt mad. Developing country debt rose by a whopping $31trn between 2000 and 2014 and emerging economies also took on vast amounts of debt. However, corporate debt is the main issue and that figure currently stands at $51trn. Faced with poor organic growth alongside rock bottom borrowing rates, businesses have leveraged balance sheets and used debt to buy back shares, acquire businesses and pay dividends. This has led to a lack of organic growth across the world and if the ‘debt binge’ ends, then we could see lots of companies in deep trouble. 

Europe’s banks look weak

The banks of Europe have been struggling for years and it looks like the first big victim may be on its way. After worrying over French, Italian and Greek banks for years the focus has switched to Germany. The German banks and in particular Deutsche Bank don’t look solid. It has over $70trn of derivative exposure, billions of dollars worth of fines and lawsuits to pay and deep connections to most of the world’s banks. This makes the company key to the health of the global banking system and in particular Europe’s banks. 

However, if you think we’re slipping into recession, there’s still value and upside to be found in equity markets with a number of solid, defensive shares. Defensives like British American Tobacco and Centrica could provide a great safe haven for cash and pay you a nice dividend. AstraZeneca for example returned over 29% in crisis year 2008 while the FTSE 100 fell a whopping 31%. That’s an impressive outperformance of 60% in just 12 months. 

More reading

Jack Dingwall has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca and Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Tobacco star

Imperial Brands (LSE: IMB) is sowing the seeds for a terrific period of growth. The company is beginning to focus on exciting growth markets such as Australia, Japan, Saudi Arabia and Russia. This will hopefully boost stagnant tobacco volume and also company profits for the next few years. 

I believe the most exciting area for Imperial Brands is the USA. Last year Imperial bought several tobacco brands from Reynolds American for a cool $7.1 bn. These newly acquired brands are Winston, Maverick, Kool, Salem and US and international e-cigarette blu. This acquisition boosted market share in the US from 4% to just under 10% and in May CEO Alison Cooper said that these brands were making “excellent progress” in the first half of 2016. 

This should be extremely encouraging for shareholders and should ensure Imperial remains one of the go-to income stocks in London. The company is also constantly rumoured to be a takeover target for larger peers in the tobacco sector. This has yet to materialise but has pushed the shares up to just off all-time highs. 

Oil Major

Royal Dutch Shell (LSE: RDSB) is another classic income play in the London market. However, I believe that like Imperial Brands it has very promising growth qualities too. After the huge acquisition of BG Group last year, management has recognised Shell has a bloated balance sheet and portfolio. This has led CEO Ben van Beurden to announce large-scale asset divestments, which will hopefully raise $35bn by 2020. Along with divestments, the company is aiming to drive down costs and only invest in top quality assets. 

This will hopefully transform Shell into a more streamlined and focused company that can extract more value from its portfolio of higher quality assets. Shell already yields 6.5% making it one of the top income plays in London. The dividend is highly likely to be increased by 2020 if the company hits divestment and free cash flow targets. City brokers also agree that Royal Dutch Shell shares have considerable upside. HSBC analysts have a 2,250p target for the stock and Barclays has an even higher target. 

If the management team manages to turn Shell into a lean and highly profitable company then I expect shares to be closer to the £30 mark by 2020. The dividend is solid and the shares offer great growth potential through upside from new BG assets and large-scale divestment plan. 

These two companies are both good income plays but also have great growth potential. This is rare in FTSE 100 companies and it’s why I believe both companies will outperform the wider market over the next few years. 

More reading

Jack Dingwall has owns shares in Royal Dutch Shell and Imperial Brands. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Economic headwinds

It’s well known that precious metals outperform in recessions and periods of economic uncertainty. This year gold and silver prices have been spurred on by the Chinese economic slowdown, the Federal Reserve delaying interest rate hikes in the USA and Brexit to name a few factors. Investors buy metals due to the safe haven characteristics of the assets and that should continue to happen if the world economy keeps struggling to grow at reasonable rates. 

Gold:Silver ratio

The gold:silver ratio is a good barometer of gold and silver prices. The extremely simple ratio indicates how much silver it takes to purchase one ounce of gold. The ratio currently sits at around 69.5, which is well above the five-year average level of 50-60. This is still much higher than the 100-year average of around 40. To me this indicates that silver is undervalued and that any further gains for precious metals will see silver continue to outperform gold. The industrial uses of silver should also help the gold:silver ratio narrow back to normal levels and in the future possibly go much lower. 

How to gain silver exposure

Gaining exposure to silver is slightly harder than gold as there are many more gold mining companies, funds and ETFs to choose from. However, listed in London there are a few fantastic silver mining companies that deserve a look. The first is Fresnillo (LSE: FRES), which is the biggest silver producer in the world and based in Mexico City. Fresnillo’s Mexican assets are of very good quality and produce about 900,000 ounces of gold a year too. The company has seen its share price rise over 137% this year and it should continue to rise if the silver price rises too.

The second silver miner to look at is Hochschild Mining (LSE: HOC), which has performed remarkably this year and has posted a 439% increase in the share price since 1 January. Hochschild operates three producing mines in Peru and one in Argentina. The company is increasing production and continuing to lower costs, which has resulted in a first half profit in 2016 of over $60m. 

Both of these companies should continue to rise along with silver prices but for me the key issue will be interest rates in the USA. If the Federal Reserve doesn’t raise rates this year then I think that silver prices could easily rise another 10%-15% before Christmas. That could mean another 20%-30% rise for silver producing companies due to increased profits. 

More reading

Jack Dingwall 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.

A streamlined major?

Royal Dutch Shell is going through a period of significant change. Shell took advantage of the current oil price slump and paid a whopping $53bn for BG Group last year. While many think it was a great deal it has meant Shell is carrying too much debt and too many assets. CEO Ben van Beurden has decided that this is the right time to reshape Shell into a focused and streamlined integrated oil and gas company.

The company has set some pretty tough targets for itself over the next few years that I think will drive the company forward. Van Beurden said in a recent presentation that Shell will be “investing in compelling projects, driving down costs and selling non-core positions” this is in order to “reshape Shell into a more focused and more resilient company.” 

Shell will be investing in only the highest quality assets like its deepwater fields offshore Brazil and divesting around $35bn of assets before 2020. These steps should increase the free cash flow and reduce gearing to a more acceptable level for a major oil company. If van Beurden manages to hit these targets then Shell won’t be trading around the £20 mark and could be much closer to £30. 

Public criticism 

Mike Ashley’s Sports Direct has been in the press for all the wrong reasons this year. Criticism of zero hours contracts and a rumoured shareholder revolt has kept downward pressure on the stock. This along with a huge earnings miss means that shares are down 62% since 1 January this year. Earnings are expected to tick up around 5% next year which means the shares are trading on a forward price-to-earnings ratio of under 11 for 2017 and 2018. Broker targets for the company are around the 300p mark, which would suggest the company is trading at fair value. 

The management team is attempting to improve the company’s image and a recent company investor presentation was titled Time For Change. Ashley has failed to restore investor confidence in the last few months, which is putting an immense amount of pressure on the share price. Although the company faces increasing public criticism and has missed earnings this year, I believe the business model still works and that Sports Direct can become a darling of the London market once more. 

These stocks were once two of the most popular stocks on the market but have been falling for a while now. I believe Shell is a good long-term investment and I think that it has considerable scope for upside in the next few years. In the case of Sports Direct I’m not as optimistic but I do think the shares are also undervalued. However, there’s still scope for a further fall in the share price and I would stay on the sidelines until the future is more clear. 

More reading

Jack Dingwall has shares in Royal Dutch Shell. The Motley Fool UK has recommended Royal Dutch Shell B and Sports Direct International. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Retirement products in demand

Specialist retirement company JRP Group (LSE: JRP) released half-year results today, which sent the shares up nearly 20% to 115p. The group was formed through the merger of Just Retirement and Partnership Assurance in April this year. Synergies from the merger have already totalled £15m and the synergy target for the end of 2018 has been increased 13% to £45m. This is obviously a huge saving over the next few years and much higher than initial expectations. 

The company is doing well and reported an operating profit of £51m along with a £226m profit after tax for the first six months of the year. Group CEO Rodney Cook stated that “our new business margin is starting to demonstrate the opportunity we have for potential further improvement as we deliver the cost synergies.” 

The stock received another boost this morning as Numis reiterated its 200p price target on the stock, which indicates that there’s a significant amount of upside from its current 115p valuation. If the business continues to perform well and more synergies can be squeezed out of the merger then the 200p valuation could become a reality. 

Governmental co-operation

Rockhopper Exploration (LSE: RKH) received some great news today that goes a long way in de-risking the Falkland Islands from a political standpoint. The British Government and the Government of Argentina have agreed to an improved relationship through closer co-operation on various matters. The governments “agreed to work toward removing restrictive measures around the oil and gas industry, shipping and fishing affecting the Falkland Islands in the coming months.” This will provide a great boost to the company as hostile rhetoric from the Argentinian government was becoming worrying. 

This news provides a further cause for celebration after Rockhopper’s half-yearly results. Yesterday the company announced that 2C oil resources in the Sea Lion Complex are now thought to be 517 mmbbl. The amount of investment required for first oil has also fallen to US$1.5bn (gross), which in turn has reduced the project’s break-even price to US$45 per barrel. This is good news for Rockhopper and shares are up 9% since the updated figures were released to the market yesterday morning. 

JRP and Rockhopper both seem to be on an upward trend and both have seen a great response to positive news. There’s a lot of upside in the shares and I think that both could be worth buying in the not too distant future. In the case of JRP it may be best to wait for a fall-back after the huge rise today. Rockhopper on the other hand has fallen over the last three months and it may be worth buying the shares if it suits your risk profile. 

More reading

Jack Dingwall 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.

Huge North Sea prize

Hurricane Energy has had a very successful couple of years and this year is no different. In April the company received a £52m investment from Kerogen Capital, Crystal Amber and Marlborough Nominees. This was a great seal of approval on the Lancaster asset and it was the beginning of a fantastic rise for the shares.

Some of the proceeds from this investment were used on the Lancaster pilot well, which reached target depth last week. The well found a “very significant hydrocarbon column of at least 620m” and importantly the well test data indicated that there are no pressure barriers in the reservoir. The well peaked at a natural flow rate of 6,600 bopd and at a maximum flow rate of 11,000 bopd. 

The next stage is to sidetrack the well and drill a horizontal well into the Lancaster reservoir to gather further production and reservoir data. The CEO of Hurricane Dr Robert Trice said that he’s “delighted that the Pilot Well has confirmed a significant oil column deeper than the 2C Case set out in the company’s CPR.” He then added that the “Lancaster field is likely to be significantly greater than the 200mm bbls 2C case.” The first stage of the well couldn’t have been better for the company and all eyes are on operations to see if the horizontal well yields similar results. 

Moroccan gas discovery

Sound Energy has also had an incredible year, which is reflected in the flying share price. Just today the shares topped 100p which is amazing considering the shares were trading at 12.75p in December 2015. 

This increase in the share price is due mainly to the gas discovery at Tendrara onshore in Morocco. The TE-6 well intercepted 28m of net gas pay in the TAGI reservoir and the well flowed at 17 mmscf/day which is much higher than the commercial threshold for the field. I think the best news to come from the well was that the pressures correlated with all previous wells on the license. This would suggest that there may be an extended structure with a significant gas column. The TE-7 and TE-8 wells will provide more data on the reservoir as well as the size of the structure. This great result from Morocco has led management to believe that the Tendrara field has multiple TCF potential. Sound has multiple price catalysts on the way not just on Tendrara but further Moroccan well tests and exploration well in Italy. 

Personally I believe that Hurricane offers the best risk-to-reward profile and seems relatively undervalued compared to Sound. Sound now has a market cap of over £500m, which I think is too much for a company with early stage assets. Momentum is a powerful factor in the markets but it has taken Sound shares too high. 

More reading

Jack Dingwall 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.

Impressive miner

Kaz Minerals (LSE: KAZ) updated the market on its production figures from the first half of the year. Copper cathode equivalent production was up 43% and the company remains on track to meet full-year 2016 production guidance of 130-155 kt. Gold production rose significantly from 16.1koz to 39.1koz year-on-year. Although gold is only a small part of the company, it’s encouraging to see Kaz taking advantage of higher gold prices. 

Today the CEO of Kaz said that we “are now delivering the highest growth rate in the sector and we look forward to updating the market on our financial performance when we announce our half-year results in August.” The market has been impressed with the results this morning and shares are up over 4.5%. If Kaz really does have the highest growth rate in the sector then those shares could go a lot higher. 

Next chapter for Melrose

Investment company Melrose Industries (LSE: MRO) released its half-yearly report today. The results had no surprises and although a small loss was made it’s nothing to worry about. I’d like to draw your attention to the new investment Melrose has made recently. The company is beginning a new chapter by purchasing Nortek for just over £2bn. This acquisition was made on the back of an incredibly successful investment in Elster that returned over £2.5bn to shareholders following its sale in December 2015.

The new purchase follows the companies strategy of “buy, improve, sell”. Melrose is hoping that the transaction will be completed in late August or early September. The shares could go much higher if the company’s new investment produces similar returns to its last. 

Pharma earnings hit

AstraZeneca (LSE: AZN) released a set of lacklustre results this morning but somewhat surprisingly, the shares are up over 2% today. Core earnings per share fell over 31% in Q2, which is slightly worrying, but the company is sticking with guidance of a low-to-mid single-digit decline in earnings and revenue in 2016. 

Analysts see Astra making another loss in 2017 before moving back to growth in 2018 as new products hit the market. The company has also been subject to further bid speculation, not from Pfizer, which made a bid for the company two years ago, but from the Swiss pharmaceuticals group Novartis. Astra’s CEO was asked to comment on whether Astra itself was looking at any acquisitions but he said “we have a really full pipeline, so we would be extremely unlikely to consider a pipeline acquisition”. Shares are up nearly 2% on the back of today’s news, despite earnings being hit. This may be due to those bid rumours but Astra remains one to watch closely over the next few months for further bid speculation. 

More reading

Jack Dingwall has no position in any shares mentioned. The Motley Fool UK owns shares of Melrose. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Copper giant

FTSE miner Antofagasta (LSE: ANTO) released second quarter numbers today which the market has taken well. Compared to Q1, copper production is up by 5.8% to 166,200 tonnes and cash costs are down 2.3% to $1.25/lb. Despite the good increase in copper production between Q1 and Q2, full-year guidance is now expected at the lower end of its initial range. In January the company gave guidance of between 710,000-740,000 tonnes for the year but despite production being weighted to the second half of the year, the company will fall short of the top figure. Yet even with this slight disappointment shares are up nearly 1% this morning and the CEO said that he’s confident management will “continue to deliver on our cost control and operational efficiency objectives for the full year.”

Antofagasta is performing OK at the moment but with continued uncertainty in the copper market I would stay away at this moment in time. 

Record inflows

St James’s Place (LSE: STJ) released impressive half-year results today, which has sent the shares up over 4%. The company is now managing over £65bn of funds after a net inflow of £3.1bn in the first half of the year. These inflows come after a long period of inflows for the company, which has resulted in funds under management increasing by over £10bn in the last 12 months. The profit before shareholder tax of £60.5m is slightly down from 2015 but net asset value per share is up over 11p to 201p. The management team has decided to increase the interim dividend by 15% and made it clear that they intend to “grow the dividend in line with the underlying performance of the business.“

St James’s Place looks to be in a healthy position with good profits and a tidy dividend yield of 2.7%. Although Brexit fallout is likely to hurt the company it looks strong enough to continue to grow. 

Investments up at 3i

Today also saw 3i Group (LSE: III) release first quarter results. The company called it a solid start to the year and the portfolio NAV is up over 16% to 538p. The private equity side of the group realised profits of £438m in Q1 with a further £143m coming during Q2. 3i is in a good position to take advantage of the current investing environment through the well funded balance sheet and portfolio of international companies. The market has also received the update well and shares were up over 2% in early trading. 

I think 3i could be a safe play for investors seeking capital growth in the medium term. The company is extremely well funded and can take advantage of any opportunities it may see. The P/E ratio is under 10 and the shares look undervalued. 

More reading

Jack Dingwall 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.