By HotStockRockets | Friday 3 March 2017
Disclosure: Financial Investigative Media Limited, which is not owned by Tom Winnifrith but by a trust for his dependants, owns shares in companies mentioned in this article. 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.
We should declare that certain team members have invested in this IPO at 5p The IPO was last week and we tipped the stock on its first day of dealings. The shares are now 7p-7.5p - we do not expect any retracement but if there is and you can buy at 7p or less do so big time. We expect to be advising folks to be banking profits at 12p within weeks. Our tip as of last week reads:
Quite simply the Saffron (SRON) IPO on AIM was underpriced which is why the £2.5 million fund raise was massively oversubscribed.
A stack of potential investors were scaled back on that raise by up to 80% and some of them will be looking to top up today because the market cap at 5p is just £7.65 million and many in the City think this has the potential to multi-bag from here. The comparison drawn is with Sound Energy three years ago. Okay it now has assets outside of Italy where Saffron is based but it is valued at £500 million. If this is anything like an early stage Sound you can see the upside?
Saffron is not just another E punt. It is a true E&P play in that it already has production. Based in the Lombardy and Emilia Romagna regions of Northern Italy it has acquired, for shares, three gas fields from ASX listed Po Valley and it remains the largest shareholder ( with 65%) and is a firm holder. We know that most of those who backed the IPO are not outright bandits and will also hold for a multi-bag. The free float of pure flippers is not that large which is why the shares could rocket.
Saffron holds a 100% interest in the Sillaro field which currently produces more t han 400 mcfpd. The company plans to drill a new deviated development well in 2018 in order to access the bulk of the P2 reserves and increase production threefold. During the next year Saffron will focus on the Bezzecca (90% owned) and Sant’Alberto (100%) fields where the completion ofa 7 kilometre pipeline to a local gas processing plant near Bezzecca and the construction of a small gas treatment plant at Sant’Alberto along with connection to the local grid will boost production significantly from early 2017.
The cash raised at the IPO will fund all the capex needed and this will boost output from 400 mcfpd to 4,000 mcfpd by early 2019. In oil equivalent terms that is 650-700 bopd. That sort of output would ensure that free cashflow even after PLC costs is a lot closer to $2 million than $1 million. And these fields all appear to have big enough reserves ( already recognised by there will be more to come) to ensure that they are producing for many years. In other words, based on what we already know the company is worth at least 12.5p per share on the basis of future known incomes.
But there is more. There is a strong management team here, notably Michael Masterman of W Resources (WRES) and we'd expect that if the paper reflects true value it will be used to add to the asset base. That offers more upside.
So why buy today at up to 7p?
a) The shares are fundamentally cheap - they are worth at least 12.5p on what is already known
b) There are some well known promoters involved including Masterman but also on the shareholder list and given the appetite for the placing we think that this could surf the wave of hot resource stocks right now and that could see the shares trade at a big premiumk to fair value.
c) there is a major site trip planned within weeks which could spark real interest
d) The shareholder register is suprisingly tight.
e) We rate Masterman highly as do others.
The trade: Buy at 5p and at up to 7p today. We aim to be advising selling at 12p within three months if not within weeks.
This article first appeared on HotStockRockets - its always paying customers first. If you missed out on this red hot share tip, fear not! To catch our next red hot share tip out on Wednesday 8 March at 11AM, for just £5, go HERE
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