Could platinum miner Lonmin (LSE: LMI), onshore oil play UK Oil & Gas Investments (LSE: UKOG) and tech firm Globo (LSE: GBO) deliver big gains over the next year?
I’ve been taking a look at the latest updates from each firm.
Lonmin
Lonmin’s South African mines are successfully ramping back up to full production following the long-running strikes of last year. According to today’s interim results, production rose by 72% to 5.7m tonnes during the first half of the year, compared to the same period last year, when strikes impacted production.
However, the financial picture was less good: underlying earnings were just $8m, compared to $103m for the same period last year. On a cash basis, the firm reported a trading cash outflow of 29.3 cents per share, which resulted in net debt of $282m at the end of the period, down from net cash of $71m at the same point last year.
Persistent weak platinum prices and exchange rate losses mean that Lonmin is now increasing the scale of its cost-cutting measures. The firm announced last week that it wants to cut its workforce by 10%, or 3,500 people, through a combination of early retirement and voluntary redundancy.
Lonmin shares edged up by 2% this morning, and I believe the firm’s shares could be an appealing investment for deep value investors. Trading at just 0.4 times book value, Lonmin looks cheap — if the firm can successfully adjust to low platinum prices.
UK Oil & Gas
UK Oil & Gas recently made national news headlines after issuing a statement that many journalists interpreted to mean that there could be as much as 100bn barrels of oil buried beneath the firm’s Weald Basin licence area in Surrey, known as Horse Hill.
This interpretation was generous at best, and the firm has since come in for some criticism over the wording of the statement — although technically it was quite accurate.
This morning UKOG announced that the oil in place estimate for the Upper Portland Sandstone reservoir — which is above and separate from the drilling zone that recently caused so much excitement — had been significantly upgraded, from a mean estimate of 8.2m barrels to a mean estimate of 21.8m barrels of oil.
The firm plans to test oil flow from this reservoir later this year, and although the amount of oil which can be recovered is normally much lower than the oil in place, this is an encouraging increase.
Globo
Globo, which develops software for mobile devices, is the kind of stock that divides investors: on the one hand, it looks very cheap, trading with net cash on a 2015 forecast P/E of 10 and with an operating margin of 35%.
Bullish investors believe this is a value buy with strong growth prospects: earnings per share are expected to rise by 22% in 2015 and by 17% in 2016.
On the other hand, the firm’s 2014 accounts raise some questions for the bears. For example, the average time take to receive payment for its invoices rose from 146 days in 2013 to 174 days in 2014.
Even 146 days is a long time: I would be concerned about this if I was a shareholder, as it could mean that the firm is having difficulties converting reported revenues to cash flow.
