The current market shake-out is opening up some interesting buying opportunities in the small- and mid-cap sectors.
In this article, I’ll take a look at three firms — President Energy (LSE: PPC), Cape (LSE: CIU) and Flybe Group (LSE: FLYB) — which I believe could deliver strong performance over the next six months.
President Energy
President Energy is a small-cap oil and gas firm whose main producing assets are in Argentina, but which is also involved in exploration in nearby Paraguay.
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The firm announced today that it had resolved a dispute with its joint venture partner in Paraguay. The deal means the two firms can continue with their exploration programme, which is expected to build on the information gathered from two successful wells drilled in 2014, in the hope of attracting potential farm-out partners.
However, President’s assets in Argentina could deliver more immediate gains: the firm’s production only averaged 171 barrels of oil per day (bopd) during the first half of last year, but President is planning to drill 17 new wells in its Puesto Guardian acreage this year, which is expected to increase production.
Alongside this, the firm is also seeking a farm-out partner for its Martinez Del Tineo gas prospect, which has independently assessed unrisked recoverable best estimate prospective resources of 570 Bcf of gas, and a net present value (NPV10) of $1.03bn, according to the firm.
With President shares trading at five-year lows of just 12p, President appears to offer decent upside prospects, especially as it is fully funded for 2015, following a placing earlier this year.
Cape
Shares in Cape slipped today, falling around 5%, after the firm revealed that its order book had fallen to £686m during the first quarter of this year, down from £746m at the end of last year.
However, the firm has announced two significant contract wins, with BP and ExxonMobil since that time, which Cape says have “materially increased the order book“.
Cape shares are up by 20% from their January lows, but still look good value in my opinion, trading on a 2015 forecast P/E of 9.2 and offering a prospective yield of 5.5%.
Cape shares remain a strong hold, in my view, and could still deliver solid gains from here if the oil and gas market continues to stabilise.
Flybe
Shares in small-cap airline Flybe fell by around 3.5% to 55p today.
I suspect the fall was caused by easyJet’s admission that it had been forced to cancel more than 600 flights in April due to French air traffic control strikes: easyJet expects these cancellations to wipe £25m from its pre-tax profits this year. Some of Flybe’s flights to Western Europe are also likely to have been cancelled because of the same strikes.
However, short-term adverse factors such as this are a fact of life for airlines: I believe Flybe remains an attractive turnaround play.
What’s more, with Flybe shares trading on just nine times 2016 forecast earnings, the downside risk appears to be limited, assuming the firm’s experienced management succeeds in resolving Flybe’s legacy problems.
