Stocks to watch in April

27 March 2012

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

With the oil price again bubbling up to more than $100 a barrel and prices at the petrol pumps creeping higher and higher, there is intense stockmarket interest in the oil sector.


Shares in Heritage Oil, however, have been weak since the company announced a major gas discovery in the Kurdistan region of Iraq. The market had been hoping for, and speculating about, a major oil find.

So finding gas instead of oil was a big disappointment, because it takes longer to develop a gas field and the development costs tend to be higher. Nevertheless, the discovery of a large gas deposit is welcome. Heritage's find is the sixth largest of its kind to be found in Iraq.

It's not surprising then that brokers such as Panmure Gordon & Co now argue that Heritage shares - down from a peak of 585p a year ago to just 316p - look good value at their current level. The company finances exploration in Africa and the Middle East from the proceeds of productive fields in Russia.

The company's discovery track record is good, although it insists on exploring in politically unstable places.


Ithaca Energy is an AIM-listed Canadian firm at the lower-risk end of the oil exploration spectrum. The company buys into existing discoveries in the North Sea, and its outlook has been transformed by the success of the appraisal well on the undeveloped Stella discovery it bought from Shell and Esso.

In 30 months, its share price has more than trebled on the success of its strategy and the rising oil price. The growth has shown the worth of buying into established fields such as Beatrice, where it has made the adjacent discoveries of Jacky and Polly. This is on top of its success with Stella and a further find in the outer Moray Firth called Athena.

The company made its first profit, of £7.94 million, in 2009. In the year just ended it is expected to deliver a pre-tax surplus of £23.9 million to produce earnings of 10.48p a share.

Analysts predict that in 2011 revenues from rising production could rise by 50%, while earnings per share could double or even treble. At 173p, the shares could be selling on a forward earnings multiple as low as 5.6 if the most optimistic forecasts prove correct.


Another intriguing oil company reporting results in April is Faroe Petroleum, which has both Scottish and Southern Energy and Korea's KNOC on its share register.

Graham Stewart, Faroe's chief executive, is pursuing a strategy of drilling in more remote and high-risk offshore areas where the potential for big new finds is greatest. These include around Greenland and the Arctic circle to the north of Norway.

Faroe made two discoveries west of the Shetlands (Glenlivet and Tornado) at the end of 2009, while last year's successes included the Maria oil find off Norway and the nearby Fogelberg gas and condensate discovery.

Following a £65 million rights issue last summer, the company has embarked on a programme of participating in half a dozen exploration wells every year.

Meanwhile, cashflow from steadily growing oil and gas production is getting healthier, substantially reducing losses for 2010 and opening up the possibility that the company will break even in 2011.

Exploration success richly rewarded shareholders, who have seen the share price rise from around 50p to nearly 200p over the past two years.



Back in September, Game Group, Europe's leading specialist retailer of video games, reported a half-year pre-tax loss of £21.5 million. But in the wake of the crucial Christmas sales season, chairman Peter Lewis forecast full-year profits of between £37 million and £39 million.

With the half-year dividend held at 1.88p, there is every likelihood that the full-year payment will be at least maintained. The shares have fallen from 228p three years ago to just 67p, where they yield 8.8% (assuming the full-year payment is held).

The shares have considerable speculative attractions, particularly as recent new product launches suggest the video games cycle might soon be swinging upwards.


A buoyant trading update in January lent support to the market's forecast that profits at fast-growing insurance broker Brightside will rise sharply from £6.6 million to £10.6 million when its results for 2010 are announced in April.

The group, launched 10 years ago, recently raised £9 million of new money via a share placing to boost its plan to deliver a wide range of personal and commercial insurance products via the internet.

Analysts think the company might make 4p a share of earnings in 2011, compared with an expected 2.46p in 2010. The shares, at 36p, have risen 50% in the past 12 months, but could still be selling on a forward earnings multiple of 9.0. Attractive.


Shares in the Prezzo restaurant chain were as high as 93p four years ago and as low as 24p two years ago. With the company having shown clear evidence of a return to growth, its shares, at 56p, look good value.

Profits are likely to rise from £10.2 million in 2009 to £13.5 million for 2010.

All the analysts who follow Prezzo have the shares on their 'buy' list at the moment, as they expect further growth this year on the back of new openings and better profit margins. A takeover bid is a possibility. The shares now sell on a forward multiple of 11.6.


Few major companies have threaded their way through recession as skilfully as Whitbread, an achievement facilitated by its reinvention of itself a decade ago.

In 2001, it sold its old brewing and pubs business to focus on aggressive expansion of hospitality brands: budget hotels chain Premier Inns, Costa Coffee outlets, and a network of Beefeater, Brewers Fayre and Taybarns restaurants.

Annual profits to March are expected to be £279 million, up from £208 million last year, when they are announced in April. Back in 2007-08 the company made a profit of just £135 million.

Dividends have risen steadily from 30.25p in 2006-07 to an expected 42.7p for the year just ended.

Growth is still very much the theme of the group under new chief executive Andy Harrison, former boss of EasyJet. The Costa Coffee formula seems to be working brilliantly. At the half-year point, its profits were up 55%. Costa already trades in 25 countries and plans to double its present size to 3,000 outlets by 2015.

Meanwhile, Whitbread's Premier Inn hotel chain will expand its room capacity by 11,000 by 2014.

The outlook for 2011 is good. Bank of America Merrill Lynch forecasts profits of £323 million and earnings per share of 129p. That puts the shares, at 1,750p, on a price/earnings multiple of 13.5, making them an attractive long-term buy.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

This article was taken from Money Observer - Moneywise's sister publication in April 2011

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