Premier Oil plc (PMO.L) engages in the exploration, development, and production of oil and gas properties. The Company’s operations are located and managed in six business units: the Falkland Islands, Indonesia, Pakistan (including Mauritania), the United Kingdom, Vietnam and the Rest of the World. In total, the Company manages approximately 760 million barrels of oil equivalent (mmboe). The Company has production rates of over 90 thousand barrels of oil equivalent per day (kboepd). The Company focuses on producing 68 to 73 kboepd. The Company’s four-well North Falklands Basin campaign targets multiple stacked fans in PL004 and PL032 using the Eirik Raude rig. The Company owns an interest in over two licenses, such as Natuna Sea Block A and Kakap.
Debt restructuring worries has caused the share price of PMO.L to fall sharply over the past few weeks. The share is now trading at half of the VectorVest valuation. Of interest is the earnings potential over a window of three years unto the future. This is known as Relative Value (RV) on VectorVest as it looks at the share price upside relative to the performance of the risk free rate. The RV of PMO.L is excellent at a value of 1.54. This means that over a window of 3 years into the future, VectorVest believes that the share will outperform the risk free rate by 54%. This is an excellent number.
However, as I shall point out many times in this post, the safety and reliability of the earnings as measured by the VectorVest metric Relative Safety (RS) is on the low side. This means that there have been surprises and earnings misses in the past and that this risk needs to be managed carefully and without emotion.
The chart of PMO.L is shown below using my normal notation. The price is charted in candlestick format while the VectorVest valuation is in the form of the green line study. The share is trading at 60p, while the valuation is 112p.
A few months ago, I called the share as it broke above the 52 week high entering at 80p. I had a target in mind of the big figure of 100p. The share missed the exit by a few ticks and I got stopped out via a trailing stop loss for a little profit. View that article here
During the debt restructuring, the carnage in the share price is easy to see. The share has however pulled back in a three wave pattern which I show on the chart. This pullback is known by FIB orientated traders as an AB=CD. If you calculate the height of wave AB and CD you will see that at the moment they are equal and that they coincide with a 78% retrace of the last impulsive wave upwards.
The pattern charted (impulse wave followed by an AB=CD) was first spotted by H M Gartley in his book written in 1933. I found his book in a second hand bookshop on the Tottenham Court Road about 25 years ago and it has been my constant companion ever since.
The pattern above is a bullish Gartley pattern and known as a Gartley 222, as it was featured on page 222 of MR Gartley’s book.
The pattern is profoundly contrarian and not for the faint of heart. The share is on a sell recommendation on VectorVest.
The technical Gartley 222 setup is interesting because of the massive difference between the share price and VectorVest valuation and also because of the excellent RV metric.
PMO.L reports during the week ahead.
The opportunity will only be of interest to those aggressive traders who enjoy the challenge of “bottom feeding”. Those traders should have the proven emotional response to just simply get out and lose a maximum of 1% of capital if the support, and thus the debt restructuring, hits the rocks.
It’s far too early to do anything in my opinion. I will wait for a bottom to be confirmed via a candle pattern. If you observe and wait for VectorVest to print a Buy signal, there should be plenty left in the move from that point. That was certainly the case on the last occasion that a Sell signal turned to Buy in December 2016.
Let’s sit and watch and get the numbers out of the way during the next week.
March 8th 2017
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