This from Fleet Street Invest:

‘Welcome to the new West! Where overnight oil millionaires with Porsches and over-the-top mansions butt up against the salt-of-the earth cattle and rodeo country. It’s a place where fortunes are made in the tar sands at noon and lost on the poker tables at night.’

Phew! I don’t think we’re talking about Ilfracombe! More like Dallas, I should say. And this is indeed the promotion for a television series called The Wild Roses, described as an ‘epic clash between two families on opposite sides of Calgary’s oil boom’. Sounds good, doesn’t it?

But what concerns me today is not this riveting saga, but the story of ContentFilm (LON:CFL). This penny share company owns Fireworks International, the distributor of The Wild Roses and many other television shows. Could this be a share for these troubled times? After all, as I have said in my ‘Bounceback Report’, I am on the look out for companies that supply life’s essentials – and, let’s face it, to many people the TV is one of them!

So I went down to London to see ContentFilm’s American chief executive, John Schmidt. We met in a restaurant close to the group’s office just off Regent Street. The rain was lashing against the windows, the kitchen was suffering from a power cut and the stock market was crashing around our ears. The omens were not propitious but the sense of gathering doom was confounded by the calm demeanour of Schmidt.

Maybe this had something to do with the fact that he had recently returned from Cannes. He was there to attend the massive TV industry jamboree, MIPCOM. It’s where media journalists try to spot the stars of the small screen, senior executives discuss the great issue of the day – how the new digital communication channels will affect TV – and broadcasters tour the exhibition halls in search of programs to show on their own networks.

A business model that’s well-suited to recessionary times

Recession or no recession, broadcasters have to transmit something, and Schmidt told me that MIPCOM had been ‘business as usual.’ But still the recession is having some effect. Whether funded by advertisers or by viewers, broadcasters are worried about their revenues. That means more repeats and more factual programmes which always sell well. It also means less appetite to take a chance on expensive and unproven new drama.

All this suits ContentFilm rather well, because it has a library of two thousand hours of television programs. It has also acquired a rosta from the Canadian Broadcasting Corporation last year, including a good percentage of factual programmes. So ContentFilm has regular repeat sales of programs from its catalogue and when it acquires the rights to new content, which include both TV shows and feature films, it has a good idea of how it will sell.

There for ContentFilm has quite a low-risk business model. It does not get into the speculative business of financing new production, it knows its market and it has put its formerly troublesome DVD business into a joint venture with promising early results. So the shares should be a good investment at this time of recession. And yet the price has fallen by 80% in the last year! ContentFilm is now valued by the stock market at just £7m, and at 4p the shares trade at just two times earnings! Surely a bargain?

Why March 2009 will be critical for this share’s performance

Well, not so fast. Here’s why you always need to look a little deeper. You can’t just pile into penny shares without doing your research.

As in the plot of any good television drama, there is a catch. You see, five years ago ContentFilm issued 34.9m Convertible Preference Shares. Holders could either convert each preference share into one ordinary share, or else they can be redeemed at a price of 26p next March. With a choice between 26p or a share trading at 4p there is only one answer. The preference share holders will want their 26p back. That means that ContentFilm will have to come up with more than £9m. Such is the fate of the best laid financing plans!

This £9m liability has been hanging over the shares like a curse. But it must be resolved soon. The share price has started to edge up and I sense that some form of compromise agreement may soon be announced. The redemption date of the Convertible could be extended to give ContentFilm more time to pay, or to give the shares more time to recover to the 26p level at which convertible holders might convert into equity rather than taking the cash.

This is a battle not between rival families in Alberta, but between holders of the ordinary shares and the preference shares. The question is, will it have a happy ending – or will it be a disaster?

Source: Could This Tiny TV Stock Be A Great Recession-Busting Investment?

Karen Chandler opened her bag and took out a chunky strip of copper and placed it on the table. Next to it she put a slim ribbon of something else I didn’t recognise at all. The second had been made by depositing layers of substances that I had never heard of – such as Lanthanum Zirconate and Yttrium – onto a base of textured nickel tape.

The finished item is a High Temperature Semiconductor (HTS) and is apparently a ceramic rather than a metal. The important thing about it is that it can deliver one hundred times the power density of copper wire, while being much lighter and more compact.

A 100-year old discovery, but with a very bright future

Superconductive materials are not new – they were discovered almost a century ago. But despite their advantages, they have never superseded copper due to the difficulty of producing large quantities of consistent quality.

But, in an era of innovation in energy technology and climate protection, AIM-listed Zenergy Power Plc (LON:ZEN) could be on to something big. I went along to meet the company’s chief financial officer, Karen Chandler, to find out some more.

Zenergy arose from a series of mergers. It has operations in Germany, California and Australia. But however hard it must be to manage such a diverse operation, Zenergy has become a world leader in a select field that includes US companies, SuperPower and American Super Conductor and Japan’s Sumitomo.

Things are starting to move. Zenergy has identified some specific applications for HTS. It has supplied its first product, an HTS Induction Heater, to the German aluminium extruder Weseralu.

Induction heaters are used in the metal forming industry. They heat metals until they are in a malleable state. They require a huge amount of electric power and with conventional heaters much of this is wasted. But by making the electromagnetic coil out of HTS rather than copper, much less energy is required and much less is wasted.

Now that one of these is up and running at Weseralu, Zenergy has been able to measure the benefits. For the same €1.2m cost, the HTS heater will cut roughly €230,000 per year off the electricity bill and deliver productivity savings worth up to €2m annually.

Attractive cost savings are attracting enquiries

These are attractive numbers. Added to the fact that the HTS Heater is quick to install, the product should find a ready market. Karen told me that Zenergy was following up forty enquiries from September’s Aluminium 2008 Trade Fair. About nineteen hundred induction heaters are sold each year. Of the €1.2m price – which is split with its partner, Bültmann of Germany – Zenergy receives about €300,000.

Zenergy is also working on an HTS Fault Current Limiter. This absorbs the unwanted and damaging electrical power common in grid failures, without having to interrupt the steady supply of power to downstream grid users. So it can be used to avoid blackouts.

Zenergy is about to deliver one of these devices into the US power grid in a deal partly funded by the Californian Energy Commission. Zenergy has also been commissioned by the US Department of Homeland Security to work on a project named ‘Hydra’ that aims to develop power grids that can keep running, even in the event of severe weather, accidents or terrorist attacks.

A big opportunity in wind generation

The market for these firewalls for power grids is, at €5bn, more than double that for Induction Heaters. Meanwhile, another major market opportunity is for electricity generators. Here, Zenergy is working with Converteam for next generation wind and hydro generators, and is already supplying the first HTS generator to E.On for a hydro electric plant.

The bigger opportunity, though, could lie with wind generators. These large wind mills suffer from a serious technical drawback in that the generator must sit at the top of the mast. They weigh 450 tons, of which more than half is accounted for by copper. That means these wind mills need a sturdy and expensive mast. By replacing copper with HTS, the weight of the generators can be reduced to just 80 tons. HTS generators are capable of reducing by 25% the cost of wind power generation.

Zenergy seems close to cracking some large markets. It also claims to be the first manufacturer to have perfected a low cost method of volume production. Profits though, are still some way off and broker Edison believes that Zenergy may have to raise more capital before it can become self-financing. So it is no great surprise that the share price has been sliding this year.

But this is certainly a company in which I will be taking an interest in. It’s one I’ll be keeping on my watch list.

Source: Playing a Part in the Future of Energy

But still, the merger of two small AIM–listed resource stocks Victoria Oil & Gas (VOG) and Bramlin (BML)may be more than just a case of two drunks leaning on each other for support. Sharing the same chairman, Kevin Foo, they should at least be pretty familiar with one another and the link goes rather deeper than this.

‘Blue sky’ potential

The major shareholder of Victoria Oil & Gas is the Abu Dhabi-based, Noor Petroleum. Not only does Noor know of Bramlin, it is also introducing into the enlarged group the assets of Falcon Petroleum (PFC). Victoria has signed a twelve month option to acquire the latter, which consist of exploration licenses over 45,000 sq kms of land in Mali and Ethiopia.

This adds some ‘blue sky’ potential to the group. But the more immediate areas of interest are Victoria’s operations in the former Soviet Union and those of Bramlin in Cameroon. The share price of Victoria today is just 6p. But back in 2006 they hit 260p after independent consultant, DeGolyer & MacNaughton, estimated that its West Med project in Siberia contains 1.1bn barrels of prospective recoverable oil equivalent, mostly in the form of gas.

The shares became a great favourite of private investors, but this reserve estimate was subsequently reduced by 9% putting the shares into a tailspin from which they have never recovered.

West Med is located in the Nadym-Pur-Taz region of Western Siberia. Along with the Yamalk region of Russia, this is the heartland of Gazprom and holds approximately 20% of the world’s proven gas reserves. West Med lies next to the super-giant Medvezhye field and about 120km from Urengoy, the largest gas and gas condensate field in the world.

This clearly has massive potential but production is some way off. Victoria has appointed GeoDynamics to conduct a passive seismic survey this winter focused on a new target location, and then drilling of the next exploration well is not expected until 2010 with a further two wells scheduled for 2012.

Jackpot potential put off course – but new deal could produce cash flow

So although Victoria may eventually hit the jackpot here, for the time being it is costing it money and its plans have been blown badly off course by the suspension of production at its Kemerkol field in Kazakhstan. This 65 sq km license area to the east of the Caspian Sea was put into production in March 2006, and in the first half of this year it produced thirty thousand barrels.

However, in a stark illustration of the perils of doing business in the region, Victoria then faced a challenge to its title to Kemerko, a challenge that was upheld by a regional court. Victoria has taken the matter to Kazakhstan’s Supreme Court and hopes for a ruling very soon. In the meantime, it has countered with its own action for breach of warranties against one Olga Elfteriadi. It is claiming $14.75m – the original cost of the license – as well, possibly, as the $23m that it has spent developing the field.

Victoria is confident of winning the day, but the court action has meant that it has had to suspend production at Kemerkol. So one attraction of the deal with Bramlin is that it with it a property that should soon be producing some cash flow. This is Bramlin’s Logbaba project, which is located within the eastern suburbs of Douala, the economic capital of Cameroon.

Not yet on City radars

Four wells were drilled here by Elf back in the 1950s, all encountering gas. An evaluation of only a small section of the area by RPS Energy in July found reserves with a net present value of $169m. Given that industrial users sit almost on top of the field and otherwise have to pay about $23/mcf for imported gas from Equatorial Guinea, they should certainly be prepared to pay the $15 proposed by Bramlin while the task of supplying them should be neither too difficult nor expensive. Bramlin has already signed some letters of intent with customers and plans to start drilling early next year with first deliveries scheduled for late 2009.

With Victoria issuing 163 million new shares to acquire Bramlin, the new group will still be valued at only £26m, just over half the £50m value at which City investors are perceived to take an interest in small companies.

However, Victoria has raised the possibility of acquiring further distressed oil and gas companies, while its share price could of course rise depending on progress in Cameron and the Former Soviet Union. But with many of Victoria’s shareholders suffering from burnt fingers they are unlikely to take too much on trust.

This one has not yet got the credentials that make it a good “bounceback belter” candidate for 2009 – not like the three I’ve just uncovered here.

More from Penny Sleuth:

News that Shell is to halt development of its vast Canadian tar sands project is a sign of changing times in the oil industry – and one that will not be well received at the AIM-listed provider of data to the oil industry, GETECH (LON:GTC). This is a pity because last week’s annual results statement revealed a share that looked extremely cheap and prompted an 80% rise in its price from 16p to 30p.

The question that affects a great many more companies than just GETECH is whether Shell’s decision is a one-off, reflecting its unusually complex and expensive project in Alberta or is an indication that the oil industry, which has loosened the purse strings in a big way in the last few years, is now ready to tighten them again.

But it was not the tumble of the oil price from $140 to $60 per barrel that was cited by Shell’s chief executive Jeroen van der Veer. ‘We will wait for costs to cool down before any new investment decisions,’ he said, and it is true that the dramatic ratcheting up of exploration budgets has seen an even more dramatic rise in the cost of drilling rigs, seismic surveys, qualified geologists and all the other ingredients of exploration.

The tipping point for the oil price?

But still for the future of oil exploration the oil price is obviously hugely important, and a few assumptions are now being revisited. Only three months ago, in its research note on GETECH, broker W H Ireland said that ‘Even factoring in a worldwide economic slowdown, few commentators are currently forecasting the price of oil to fall below $100, let alone $70.’ How quickly can such forecasts be overtaken by events!

This matters to GETECH because ultimately its addressable market is determined by the size of exploration budgets in the oil industry. Not surprisingly GETECH has been enjoying something of a boom of late, but when I spoke to chief executive Raymond Wolfson he admitted that GETECH had felt a downturn in the late 1990s when the oil price fell. Then it hit a low point of $16 causing most big oil companies to radically cut back on exploration.

Where now is the tipping point? At what price will oil companies decide that it no longer makes sense to throw huge sums at exploration projects – knowing of course that much of that money will never produce any return? This is a complicated issue that depends amongst other things on the profitability of existing oil production, the complexity of new projects (that is tending to rise as the frontiers of exploration are pushed back) and those costs of the necessary equipment and other resources.

According to GETECH this tipping point lies at about $70, so it will not perhaps have been surprised to see Shell’s decision. But it is probably now wondering what this sudden retraction of the oil price means for its own future.

At the frontier of exploration

GETECH was founded by Dr Derek Fairhead of the University of Leeds, who thought it would be a good idea to produce a comprehensive gravity survey for the African continent and persuaded eight large oil companies not only to contribute their own data but also some money. The Africa Gravity Project was begun in 1986 and was the first in what has become a series of such studies that give oil companies the basic location and structural architecture of sedimentary basins that could contain oil.

Today GETECH has one of the largest and most extensive libraries of magnetic, gravity and topographic data covering almost every country in the world and it is soon to launch five new studies each of which covers a specific geographical region. These are East Africa, the South Atlantic, the Taoudenni basin of Mauritania, South East China and the Arctic.

The latter is of special interest as the Russian Arctic is considered to be one of the last frontier areas for exploration and, as proof that GETECH is a company with international respect, it is building databases in partnership with various Russian scientific organisations.

Profits on a rising trend

GETECH typically has these studies part-sponsored before commencement and subsequently licenses them to additional clients. It sells them for several thousand pounds and, as well as the US Government, its principal customers are big oil companies such as Shell, BP and ExxonMobil.

Having cut back exploration departments in the last downturn these giants are wary of rebuilding them and anyway cannot see much point in trying to create their own databases when GETECH has built a comprehensive database from information gathered from all sources.

Building upon strong relationships with its customers GETECH launched its Petroleum Systems Evaluation Group in 2004. Going one step beyond provision of raw data the aim of this group is to provide a more detailed insight of where oil and gas might be found within the sedimentary basins, and offers interpretation of regional tectonics, earth system modelling and palaeodrainage analysis.

The result of this is a rather unusual business with a strong customer base and a minimal requirement for capital investment. Profits have been on a rising trend, reaching £0.9m in the latest financial year and from earnings per share of 2.17p GETECH paid an attractive dividend of 1.3p. GETEC has net cash of £1.6m and owns its Leeds headquarters which is valued in the balance sheet at £2.7m.

So today’s stock market valuation of £8m is well backed by assets as well as by earnings and the dividend but while the immediate concern rests with the future of the oil price, perhaps a bigger issue for shareholders lies with GETECH’s avowed ambition to make acquisitions. So far in the three years of its AIM listing it has been unable to strike a deal and unless it can find one, and a good one at that, it may be destined to remain some way below the radar of institutional investors.

Source: Oil : Where Now is the Tipping Point?

This from Penny Sleuth:

How many times have you read that before? Several, I imagine. But this is not just my headline writer suffering from a crisis of creative confidence. It is, with a slight variation, lifted from the agenda of next week’s AIM conference, to which the London Stock Exchange has graciously offered me a free ticket thus saving me from having to fork out £650 for this one day event. It will be interesting to hear what the presenters at this conference make of the state of AIM today and I will relay this to you at a later date.

It will also be interesting to hear the panel discussion on ‘Cleantech – the next big sector’. Especially, perhaps, on how Cleantech can be prevented from following previous ‘big sectors’ such as dot-com and mining by becoming wildly over-hyped, with the inevitable consequence of a nasty crash.

Anyway in preparation I have been doing a little research into Cleantech. In the November issue of Red Hot Penny Shares – if you’re a member, you’ll receive it this Saturday – I’ve identified three companies quoted on the Stock Exchange that are firmly in this exciting category. As you’ll read, this sector could be a huge opportunity and although it may be a little early to invest just now, these are three shares I’ll be watching closely.

In the issue, I have also found two top quality small companies that are ideally placed to prosper even in the current economic climate. And I explain why the world’s greatest investor says that now is the time to be buying shares. I’m on his wavelength, as I’ll explain.

Leading-edge technologies for a cleaner, brighter future

But let’s get back to Cleantech. It’s defined on Wikipedia as ‘knowledge-based products or services that improve operational performance, productivity, or efficiency while reducing costs, inputs, energy consumption, waste or pollution.’

That could pretty much cover anything really, couldn’t it? The definition provided by investment group 3i gets a little closer to the mark. ‘Cleantech’, it explains, ‘embraces a cluster of leading-edge technologies that are addressing many of the world’s key concerns by making better use of resources and finding cleaner, greener ways to build prosperity.’

Are you getting the gist of it now? Basically, Cleantech is where the wicked world of commerce meets our environmental conscience. It is all about getting richer without destroying the planet. And where an investment theme has a ring of goodness and virtue about it as well as an opportunity for profit, you can be sure that the world’s financiers will have their feet firmly in the trough.

$187bn investment headed for Cleantech

This is indeed the case. $23bn was invested into Cleantech projects in 2000 and if that sounds big, it is nothing compared to the $187bn forecast for 2012.

The credit crunch does not seem to be doing much to stem the enthusiasm. ‘There are clear signs that the Cleantech sector is proving more resilient than others,’ said Michael Liebreich of New Energy Finance. ‘We saw 60% growth in 2007 and the overall expectation for this year is that the numbers will move sideways or slightly up.’ And to illustrate the point, last week saw Intel’s venture capital arm buy a $20m stake in a Chinese solar energy firm.

China, that big dirty villain of the global economy, belching its clouds of black smoke upon us all, is one target for Cleantech. The Chinese government has at least made noises about the state of the environment. It seems prepared to seek help from abroad. But Cleantech is not just about China or clean energy. It includes all sorts of other things as well.

The main themes are agriculture and resource management; biofuels and bioenergy; carbon; energy efficiency; energy storage; fuel cells; low carbon buildings; renewable and alternative energy; transport; waste and water treatment. So all over the world money is being invested into wind farms, carbon capture, fuel cells, electric cars, desalination, recycling, into the capture of methane gas from rotting waste – and much, much more.

The majority of this money is going into private companies, many of which will be floated on stock markets over the coming years. Should investors be excited or wary?

The experience so far – because there are already several Cleantech companies on the stock market – is that we should be wary. It is one thing to come up with a bright idea for getting rich without doing any collateral harm but it can take an awful lot of money and an awfully long time before it becomes a commercial proposition.

A sector to learn about, get to know and understand…

The sector is encouraged by government regulation and supported by public money. It is solving problems such as the shortage of energy and water. It is giving the world what the world wants. It is attracting investment from some of the biggest private equity funds. And yet none of this means that Cleantech is necessarily a good bet for stock exchange investors.

It is right to be wary. If you don’t believe me then listen to the words of Achim Steiner, the head of the UN’s environment program. ‘Just as thousands were drawn to California and the Klondike in the late 1800s, the green energy gold rush is attracting legions of modern day prospectors in all parts of the globe.’

You have been warned. For me, this is a sector to watch carefully for now. It could well be that there will be huge opportunities to profit from Cleantech in the future. Now is the time to learn a bit about it… and to get to know and understand some of the companies involved.

PS. Like the sound of Cleantech? You can invest in the broad sector with the Powershares Cleantech Portfolio ETF (AMEX:PZD).

Source: The Next Big Thing

The recruitment sector of the stock market is going though one of its seemingly inevitable cyclical slumps. But one company that is performing better than most is Hexagon Human Capital (LON:HHC). And right now, it’s on a dirt-cheap rating.

I was interested to speak to Hexagon’s chief executive Jonathan Wright recently. Jonathan has already had one successful career in this industry, as managing director of the Alexander Mann Group. There, he was for six years number two to Dragon’s Den panellist James Caan. During that time Alexander Mann’s profit grew from £0.1m to £5.4m, before eventually being sold to private equity group Advent International for £25m.

Jonathan set up Hexagon in 2004, partly to run his own show. He also saw the opportunity to combine a head-hunting agency working at the high end of the executive market with an interim management business. The latter is the temporary employment of consultants to execute change programmes or undertake specific short-term projects.

‘The lower end of the food chain,’ Wright told me, ‘is under margin pressure.’ Employers are not prepared to pay big commissions just to bring in junior staff. But when it comes to finding senior executives who could make a real difference to the business – and indeed to the share price – the cost of finding those people is less important.

Building through acquisitions

Wright has built the business through acquisitions. Hexagon has so far bought seven agencies – Archer Mathieson, BIE Interim Executive, Akamai, Euromedica, Oxygen Executive Search, Roberts & Corr and, just last week, the Winchester Group.

This shopping spree has achieved one of Wright’s aims, a broad spread of business to counter the ‘pitching and rolling’ of any one sector. It has made Hexagon the UK leader in interim executive management, ahead of Odgers.

It has also given Hexagon a presence in the overseas markets. Euromedica, an executive search company specialising in the life sciences and healthcare market, has offices in Benelux, France, Switzerland, Scandinavia and India. And Akamai, a business bought from Hat Pin for just £1 in April has an operation in Dubai.

When I spoke to Wright he had just returned from a trip to the Emirates. He was surprised to find that, contrary to the glossy picture of spectacular new buildings there, the basic infrastructure is still quite backward and that the sovereign wealth fund management businesses and Arab owned investment companies are tiny, with just one hundred or so staff. So while these outfits are keen to have some support and assistance from westerners, the size of the market for a company like Hexagon is still quite small.

Little exposure to the problems in the City

The other overseas office is now in Atlanta, by courtesy of the Winchester acquisition. This deal was done in response to the demands of Hexagon’s multinational company clients, who expect a search firm to be able to tap the vast market of American talent as well as just that of Europe. Hexagon’s business is well diversified with its largest sector, pharmaceuticals and life sciences, accounting for about 12% of its business. It has little exposure to the City market where it is fair to say that the number of candidates outstrips the number of vacancies at present.
The business also benefits from the relative stability of the interim executive placement market. Hexagon has about fifteen hundred forty and fifty-something executives on its books. Of these, about two hundred are working on assignments today.

Hexagon’s clients, which include twenty-five of the FTSE 100 companies, will pay up to £1000 per day for their services. Wright believes that today’s testing business climate could persuade even more large companies of the need to implement change programs. It’s a niche that could reward Hexagon in the longer term. Sometimes these interim executives are offered full-time positions by the companies for whom they work, netting Hexagon another chunky fee, and contributing towards the fee income earned by each of its sixty-one professionals.

On average these professionals booked a net fee income of £430,000 each last year, a figure so remarkably high that it is little wonder that Hexagon is a comfortably profitable business with a good cash flow to boot. In the year to March, Hexagon made a profit before goodwill amortisation and tax of £4.4m. This year broker Equity Development is forecasting a figure of £6m, sufficient to generate earnings per share of 25p. That puts the shares on a very low PE ratio of four, a rating that looks even more attractive after Hexagon confirmed that the business was on track at last week’s AGM.

But the AGM revealed something else of interest. That Hexagon has aborted a ‘major transformational deal’, writing off costs of £0.7m. ‘During recent months,’ it said, ‘in response to the dramatically altered market sentiment and associated valuation metrics, the Group’s acquisition model has been modified.

That sounds to me like a sensible way to proceed just now. But until Wright is able to get the acquisition mill rolling again the shares will probably remain out of favour.

Source: A Niche That Could Help This Cheap Penny Share Grow

John Ketteley is trying to get into prisons. He thinks there’s money in it. And what he told me made me think about a possible opportunity in the future.

OK, let me explain. Ketteley is not some arch villain on a crime spree. He is in fact the Executive Chairman and 13% shareholder of the building products group, Eleco (LON:ELCO). He reckons that the government’s increasing requirement to lock people up – which I somehow doubt will be reduced by the recession – will provide some work for his group.

The prison building programme, along with the planned construction of schools, nursing homes and ‘key worker accommodation’ is a natural target for the type of products in which Eleco specialises, products that make it easy to construct modular buildings using elements produced off-site. Principal amongst these are pre-cast concrete panels used for walls, rooms, barriers and sports stadium terracing produced by subsidiary Bell & Webster, which has just opened a new facility at Haveringham.

Work for the public sector should provide some defence against the slowdown of house building that affects 14% of Eleco’s turnover. Eleco has various subsidiaries including one called Gang-Nail systems that I seem to remember from my distant days as a building analyst used to be owned by Redland. The building products industry does not go in for fancy names and another Eleco subsidiary is called International Truss Systems – nothing surgical, just roof trusses supplied to the South African market.

The roof, as Ketteley pointed out, is the last part of the building to be completed. In other words it is the last part to be paid for, and Eleco has had a couple of ‘run-ins’ with its customers. But while the financial crisis is inevitably causing a few difficulties, Eleco is far better placed than most, partly because of its products, partly because it has read the cycle cleverly, but also because it has that one thing that we would all like right now – cash.

A recession-proof profit-stream

Aside from pre-cast concrete, roofing and cladding, timber frame and timber engineering systems, Eleco also owns companies involved in software for the building industry. There are different types of software. There is software used in architectural design, software used in cost estimating, software that maps and monitors the execution of a project, and software that essentially keeps a daily diary of the work on-site, something that can come in useful in the event of a dispute involving the client and contractors. Software contributes just over 10% of operating profits. But it should prove reasonably recession proof, especially as much of the turnover is outside the UK.

An interesting new service (that can be seen on the www.e-sign.com web-site) is made possible by visualisation software. This is used by building designers, as well as by Birmingham Council which used it to visualise the impact of shadows caused by new buildings. A new web-site, called Grand Designs, will be launched in October and this will enable the self-builder to design and visualise his own house.

Another interesting service allows you to download a photo of a room of your house and then edit in a choice of floors, thus allowing you to see what they would look like in your own home. This is already is use in Germany, where 80% of those that use the service go on to buy the flooring product.

So Eleco’s products appeal to modern designers and modern building techniques, and allow builders to meet the ever more stringent building regulations.

With a balance sheet like this, here’s one to watch

This is one of Eleco’s strengths, but perhaps the greatest at this point is the balance sheet. A former banker, Ketteley rescued Eleco in 1997 when it had a market capitalisation of £3m but borrowings of £7m. As he told me, ‘we don’t want to be in that position again.’

Today Eleco has a market cap of £46m and net cash of £6m as well as a £14m facility from Lloyds, arranged last year. This puts it in a great position to make acquisitions, but it also means that at a time when, for instance, the Olympics site is reviewing the credit worthiness of its suppliers, it can take business from others.

Broker Collins Stewart has raised its profit forecast for the year to June 2009 by £0.3m to and now forecasts earnings per share of 11.7p. The P/E ratio is little over six and the yield is over 4%.

Eleco is much better placed than most building products suppliers at this difficult stage of the cycle. That puts it on my list of shares that I’m not quite ready to buy yet… but which is certainly on my radar.

Source: The Attraction of Prisons

Alan Burns knows what it is like to be on an off-shore drilling rig during a hurricane. ‘It’s the noise’, he explained. ’That’s what you don’t expect.’ But the prospect of finding himself in this situation again does not deter him. ‘Oil rigs today are safe,’ he assured me. ‘The only ones that have been damaged in the Gulf of Mexico were either too old or so new that they had not been properly secured.’

In any case the hurricane season in the Gulf is more severe than afflicts the Bahamas and it is here that Burns has identified ‘the biggest thing I have seen in my life in the oil business.’

Attractions, attractions, attractions…

That is something coming from this sixty-seven year old Aussie who banked a fortune when Hardman Resources, the oil company that he founded, was bought by Tullow in 2006 for £650m. Today he does not mind admitting that he would rather spend his time looking for oil in a place where it is pleasant to live, but still it is clear that he set up his Bahamas vehicle (LON:BPC), for other reasons than golf courses, beaches and fish dinners overlooking the warm Atlantic water. He reckons that there could be large reserves of oil and gas under that water and is determined to find out.

Last month BPC was reversed into the AIM quoted Falkland Gold and Minerals after the latter concluded that further exploration for metals in those islands was a waste of time, and three weeks ago shares of BPC started trading. The share price now stands at 5p, valuing BPC at £40m, and this has all the makings of a share that will be actively traded and a favourite of the message boards. But for a company at BPC’s stage £40m is an ambitious valuation, and I have been looking at the listing prospectus to see whether this can really be justified.

The attractions here are the size of the license areas, their location, and the political regime of the Bahamas, where of course there is a Governor General appointed by the Queen and a judicial system based on English common law.

Over the next five years BPC must pay $2.44m for the rental of its prospecting licenses, and another $1.35m for work obligations. Beyond that no tax is payable but in the event of BPC producing oil it would have to pay royalties to the Government at 12.5% or 25% for an oil production rate of more than 350,000 barrels per day. If that ever happens then BPC’s shareholders will not mind at all paying the Government such a levy, and such are the size of the license areas that production of this quantity is at least conceivable.

The search for data

BPC has five license areas covering a total of 15,676 sq kms and it has spent the last few years gathering all the available data. This has not been easy, and Burns told me that documents were retrieved from a partially flooded shed in New Orleans and a warehouse in North Wales, as well as from oil companies, universities and research institutions. The Bahamas Government had no central repository of data and in fact did not even have a department to deal with license applications until BPC chivvied it into taking some action.

So BPC has been busy rounding up all the information gained from the sporadic exploration activity of the last sixty years.

In 1947 there were eight active licences, including those held by Gulf, Standard Oil (OTC:STDE), BP, Superior Oil and Shell (NYSE:RDS.A, RDS.B). Exploration in those days consisted of gravity and magnetics with some rudimentary seismic. In the next forty years further prospecting was done and five deep petroleum wells were drilled either onshore or in shallow water.

According to industry consultant Moyes & Co, ‘the well results suggest the presence of active petroleum systems’ and now, having collected and reinterpreted all the available data BPC has identified twenty-two leads as being potentially capable of holding ‘commercially exploitable volumes of hydrocarbons.’

Could there be more to the Bahamas?

Now BPC has invited other oil companies to Colorado where it has set up a data room and is looking to bring in partners to take the project forward. The prospectus says that BPC intends to start drilling by 2012, but with the market for drilling rigs promising to flip from undersupply to oversupply, and the Bahamas being such an accessible region and close to the Gulf of Mexico, BPC is hoping to beat this timetable.

The waters of the Bahamas are shallow and are close to Florida. So if BPC finds that the geology of the region does indeed hold oil and gas in quantities and rock formations that make it commercially exploitable it should have no trouble delivering it to the thirsty markets.

This is an intriguing situation and very much one to watch. Could there be more to the Bahamas than marlin fishing and golf? Over the next few years we shall find out.

Source: The Biggest Thing in the Oil Business

This from Penny Sleuth:

John Sutcliffe, is a Yorkshireman. A lifetime spent thousands of miles away from his beloved Wharfedale in the Yorkshire Dales has weathered his bearded face but not quite disguised his accent, or the blunt opinions for which his native county is famous. ‘The oil industry,’ he told me, ‘is made for idiots.’ Once the drill bit hits oil, he explained, you leave the rig exactly where it is and just start pumping for all you are worth.

Not so in mining…

It’s as much who you know as what you know

Finding metal is only a step along the way. Before you can actually get it out of the ground you need a mining permit, a feasibility study, and all the necessary equipment. And by the time you are ready to actually dig the stuff out of the ground the price of the metal could be anything. So you have to cut deals. You have to raise cash amongst your friends and contacts. You have to bring in partners. You have to get all the local officials on-side. You need to hang out in the right places and meet the right people. It’s as much who you know as what you know.

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So, sixty-two year old John Sutcliffe should have the edge over twenty-eight year old Jeremy Martin. Jeremy does not have a grey beard or a weathered face. Smart in a suit and tie he looks more like a young banker than someone whose idea of fun is hacking away at rocky outcrops in the hills of Peru.

Inevitably he lacks the self-confidence of John, who already has discovered several major mines in his career and knows that he can do it again. John told me how Mariana Resources (LON:MARL), his AIM-listed company, was born.

‘I met a couple of my old University mates at a conference in Toronto. Over a few beers we decided to start a new company. We raised some money from people we knew in Australia and then got some properties together.’

A little credibility goes a long way

You can do that when you have won your credibility. But Jeremy still has it all to prove. Having plunged into South America with little more to sustain him than a stint at the Camborne School of Mines and a degree from the University of Leicester he founded Horizonte Minerals, he gave me a measured account of its strategy.

He insisted that he had no scatter-gun approach to exploration. His project criteria are well-defined and work proceeds in a controlled manner. He wants to take projects to the stage where the resources are proven and a bigger company can be found to bear the expense of setting up a mine. Horizonte is sticking to established mining areas and to the large license areas that attract bigger players.

Horizonte (LON:HZM) and Mariana have a similar stock market history. Both were listed on AIM in May 2006. Then Horizonte sold shares at 30p. Today the price is 11p, valuing the company at £4m. Mariana sold shares at 20p. Today they trade at 5p, so Mariana is valued at about £3m.

Horizonte has projects in Brazil and Peru; Mariana in Argentina and Chile. Both have been through the time-consuming and sometimes frustrating process of exploration – studying satellite photographs, taking rock and soil and water samples, digging trenches and making small drill holes. And both have been frustrated that investors seem unable to recognise the value of all this work.

A $60m drilling success?

Now, though, they are both hoping for a change of fortune, and Horizonte seems to have the stronger case. Last week it announced that the first eighteen of sixty wells to be drilled at its Lontra nickel project in Brazil had encountered significant grades of nickel.

If the remainder of this drilling programme comes up with similar results then Jeremy Martin reckons it could conservatively be worth $60m to Horizonte. On top of this it has already brought Australian miner Troy Resources into its Brazilian gold project and if Troy decides to take the mine into production then Horizonte stands to receive a $2m cash payment and $15m of royalties.

For Mariana the story is a little different. It is yet to announce a significant discovery, although this could be about to change with drilling programs scheduled later this year at a copper project in Chile and at the Sierra Blanca property in the Argentinian province of Patagonia.

But John Sutcliffe has something else up his sleeve that could give Mariana’s share price a boost. He has been calling on all those contacts of his. People who have known him for years and accept his judgement. Some of them, he thinks, might like to buy their way into Mariana’s projects.

He reckons that he could cut a deal that would show just how undervalued are Mariana’s shares. The question for Jeremy Martin, as he tries to exploit Lontra for the maximum benefit of Horizonte’s shareholders is – can he do the same?

Source: The Old Miner and the Young Miner