I’ll tell you what I find frustrating about the Premier Oil(LSE: PMO) shares — I own some, and the price is staying stubbornly flat. Back in May, my colleague Roland Head suggested that the shares were far too cheap, and they’ve barely moved since then.
The company’s balance sheet is improving significantly, even if we’re still in early days yet. And if the oil price remains stable, Premier’s debt should reduce significantly in the second half of the year. At the interim stage in August, we saw early signs of that with net debt down to $2.65bn. That’s only a modest reduction so far, but the stronger oil price hasn’t fully kicked in yet.
What’s holding the share price back and what might act as a trigger for a possible uprating? The return to profit forecast for this year would put the shares on a P/E of around 8.5. With still-massive debts, I can handle that as being not unreasonable. But if the firm’s return to health goes as predicted, we’d see that multiple drop as low as five by 2019.
For now, I think it’s just that investors want to see Premier’s money where its mouth is, as many were burned pretty badly by that hugely over-stretched debt when the oil price crashed. I suspect it will take at least a strong set of full-year results this year, but it could easily be another year beyond that before confidence fully returns. I’m in no hurry.
One big milestone in a growth stock’s coming of age is the payment of its first dividend. That’s what’s just happened at AIM-listed Anglo Asian Mining(LSE: AAZ) as the gold, copper and silver producer released first-half results.
The company, delving for those metals in Azerbaijan, revealed gold production of 33,255 ounces and silver of 84,785 ounces, together with 587 tonnes of copper. Full-year production guidance remains unchanged.
Thanks to higher production and better selling prices, Anglo Asian reported a revenue increase to $40m, from $29.8m at the halfway stage last year, and turned 2017’s first-half pre-tax loss of $1.3m into a profit of $8.1m. Free cash flow more than doubled from $7.4m to $16.4m, and net debt was slashed from $18.1m to just $2.9m.
Passing my test?
Nice profit and a maiden dividend: that satisfies one of my main requirements for a speculative growth stock, especially an oil or mining prospect. The share price is up 5% on the day to around 57p, which takes it firmly out of penny share territory, and the price rises of the past couple of years push the market cap up to a respectable £65m.
A lack of forecasts makes valuation a little tricky, and there are certainly risks associated with operating solely in Azerbaijan. But if you’re after a precious metals growth prospect, I think there are worse choices out there.
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Alan Oscroft owns shares of Premier Oil. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.