Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Tomorrow I am off to Jersey for New World Oil & Gas’ (NEW) Annual General Meeting. If all goes to plan, Adam Reynolds and Nick Lee will be elected to the board, while Peter Sztyk will be deservedly kicked off. Although this should prove to be the watershed moment in New World’s transformation, it will not necessarily trigger an immediate rally in the share price. The hard work begins, once the result is known. However, if Reynolds and Lee remain true to form then 2016 could be incredibly exciting year for this company.
Over the last few years Reynolds and Lee have been involved in some incredible success stories on AIM. Reynolds’ involvement with Optibiotix (OPTI) has grabbed all the recent headlines, as that company’s share price shot up over eightfold since the start of the year, from 12.5p to over 100p. Premaitha Health (NIPT), another of Reynolds’ turnarounds, rose from 11p on 4 July 2014 to a high of 32.35p on 02 April this year. Although it has pulled back recently, it is still up over 60% since re-joining the market and the bulls believe it won’t be long before contracts are secured.
Meanwhile, through Paternoster Resources (PRS), Nick Lee has seen several of his investments make stunning gains. His most notable performers have been Plutus Powergen (PPG) and MX Oil (MXO). Although neither company is particularly well loved at present, Lee/Paternoster bought into both opportunities at the start of their resurgence. At Plutus, Lee participated in the 0.25p placement. Plutus peaked at just over 2p recently. At MX Oil, he took shares in the 1p placement eighteen months ago and saw the share price of that company move up nearly 5 times.
I make more of the bull case for New World in ShareProphets’ latest guide “Eight shares to buy for the Santa Rally”, but the point is that both Reynolds and Lee have proven pedigree in identifying fantastic turnaround opportunities.
The difference with New World, compared to their other successes is that this company has a significant cash balance to work with from the beginning. This is not to say that sorting out New World is going to be easy, but there is a solid foundation in place to take the company forward.
I don’t expect there will be immediate fireworks. The first order of business will be to resolve the legacy issues surrounding the company, not least restructuring the board. There are concerns among shareholders about accrued remuneration and severance terms. This is understandable given the greed exhibited by New World’s board in the past, but I don’t expect Reynolds or Lee will roll over lightly on this. Both men are aware of New World’s tortured past and both have a keen interest in repairing this company’s relationship with shareholders and the market, while preserving as much of the cash balance as possible.
Investors on AIM are notoriously short of patience, but in the case New World a little of that will be required. Christmas is just over a month away and we then move into the dead zone of early January. This will give Reynolds and Lee two clear months to go about their business, preparing the company for its new lease of life.
Shareholders will certainly be very keen to hear specific news about a deal or what the plan is. It will be up to Reynolds and Lee to ensure that New World gets off to the right start in terms of shareholder communication. The sooner they can start providing updates to the market the better, but I don’t expect we will hear about the future strategy until after both men have established themselves in the company. It is much more important that they do their jobs properly and ensure that whatever mess is left behind by the old board (which we can be certain exists), is resolved quickly.
Once this is done then we can all start looking to the future.
New World is certainly a high risk play, but with no threat of imminent dilution (the company has cash), the talent of the new directors and the high level of retail awareness of this stock conditions are set for a multiple return over the coming twelve months. The first step will hopefully be a successful outcome at tomorrow’s AGM.
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