The 88 Energy (LSE: 88E) share price slumped this morning after the company published a worrying trading update.
Testing at the company’s Icewine-2 well in Alaska is not going to plan. After spending the bulk of June trying new tactics to reach the Icewine-2 well reservoir, so far, there has been no meaningful hydrocarbon production from this asset.
Pushing for production
In an attempt to speed up the well’s development, several weeks ago the company started nitrogen lift operations, which are designed to accelerate the rate of recovery. However, even these efforts have failed to produce results. “Since the last update, the reduction in nitrogen injection rate to minimise the impact of a perceived downhole choke has not resulted in an increase in the rate of flow back of stimulation fluid or gas,” today’s update said.
What’s more, it is expected that, if contact with the Icewine-2l reservoir is achieved, there will be a “meaningful change to the composition of the returned gas and fluid” from the well. Unfortunately, even after efforts to stimulate the well, flow back “is considered to be low salinity stimulation fluid, which is not considered representative of the content of the reservoir.”
It looks as if this is another setback for the 88 Energy share price. And while the company might not be on the ropes just yet, as my colleague Alan Oscroft pointed out at the beginning of June, investing in 88 is akin to a coin-toss where striking oil could mean a big payoff, but further failures could see the enterprise collapse.
When it comes to investing, I’m not interested in heads I win, tails I lose binary bets. That’s why I’d shun the 88 Energy share price in favour of superstock Games Workshop (LSE: GAW).
Rising profits
Unlike 88 Energy, which is still in the early stages of its life, Games Workshop is highly profitable. Since 2013, net profit has more than doubled, and City analysts are expecting this trend to continue.
Earnings growth of 96% is currently being projected for this year, sending EPS surging from 93p for 2017 to 183p for 2018.
This growth doesn’t come cheap. The stock trades on a forward P/E of 16.2 right now, a premium to the broader market average of 14.2. Still, considering the firm’s outlook, and growth over the past few years, I believe the risk/reward profile is attractive at present.
And as well as explosive earnings growth, Games Workshop has also earned itself a reputation as an income champion. Last year, the company distributed 130p per share to investors, giving a dividend yield of 4.4%. City analysts expect Games Workshop to keep its payout at around this level in the near term, with 120p per share scheduled for FY2018 and FY2019. At the current share price, the forecast dividend of 120p per share equates to a prospective yield of 4%.
I would not be surprised if the company issues any special dividends as well. With just under £30m of cash on the balance sheet and low capital spending requirements, Games Workshop has more money than it knows what to do with. So, if you’re looking for income and growth from your investments, I believe it is well worth your research time right now.
