Ithaca Energy Inc (IAE.L) is a North Sea oil and gas operator engaged in assessing and developing undeveloped discoveries in and around the UK, and exploiting its existing UK producing asset portfolio. Properties include Northern North Sea, which consists of Dons, Causeway Area and Broom; Central North Sea, which consists of Greater Stella Area (GSA), Cook and Pierce; Southern North Sea, which consists of Topaz, and Southern England consisting of Wytch Farm.
On November 14 2016, IAE announced Q3 results, which revealed solid YTD cashflow of $117m for the first nine months of the year, with average production of 9,585 boepd (barrels of oil per day), ahead of the previous 9,000 boepd guidance. Earnings for the period amounted to $12m, excluding non-cash mark-to-market of future hedges and non-cash accounting tax charges resulting from reduction in UK tax rates. IAE said it was nearing a material step-change in the business, with production set to more than double to 20-25,000 boepd and unit operating costs to reduce to under $20/boe with start-up of production from the Stella field. The company continues to make additional acquisitions: increasing its position to approximately 33% in the “Vorlich” discovery and acquiring a 75% interest and operatorship in the nearby “Austen” discovery.
The potential at Ithaca had been picked up by VectorVest UK earlier in 2016, when the company financials triggered flags across a number of indicators, including Earnings Growth Rate (GRT). This metric reflects a company’s one to three year forecasted earnings growth rate in percent per year, and VectorVest considers IAE forecasted GRT of 26% to be excellent. In addition the company has an excellent Relative Value (RV) score. RV is an indicator of long-term price appreciation potential, and VectorVest considers IAE forecasted RV of 1.42, to be excellent on a scale of 0.00 to 2.00. In terms of the current worth, IAE.L has a current Value of 117.95p per share, meaning it is undervalued at the current 85.75p.
Conservative traders should note the Relative Safety of the share is below 1. This means that there has been earnings surprises in the past. The opportunity in the share should be considered by those traders who are comfortable with managing risk by carefully placed stop loss orders.
The chart of IAE.L is shown above with the price in candlestick format. The green line above the price is the VectorVest calculated valuation while the blue line in the window below the price is the Earnings per share (EPS). The share broke from an ascending triangle formation in October and since has pulled back and charted a treble bottom formation at the level where previous resistance has become support.
IAE.L has tried to break through 92 pence on three occasions since the 21st of October. Markets invariably break on the 4th attempt and technically that’s looks highly probable in the next few days. On Wednesday 7th December the share traded a “hammer” candle which adds to the positive technical picture.
Summary: Although stocks in the oil sector are volatile in line with the oil price , there are some great opportunities to be found. IAE is one such stock, and VectorVest concludes that the raft of positive fundamental and technical data outlined here warrant a buy rating.
November 29th 2016
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