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Gold Slides On Dollar Strength But Amara Mining PLC Holds Onto Gains

goldGold has fallen steadily this week, as sentiment has shifted in favour of a rise in US interest rates, strengthening the dollar. Gold fell through the $1,300 per ounce barrier early in the week and on Thursday morning was down by 1.6% on Mondays opening price, at $1,280 per ounce.

Golds weakness has seen the share prices of physical gold ETFs move lower this week: the $34bn SPDR Gold Trust (NYSE: GLD.US) ETF has fallen by 1% to $124.22, leaving it up by 7.0% so far this year, while London-listed Gold Bullion Securities (LSE: GBS) has fallen 1.8% to $122.77, leaving it up by 6.1% so far in 2014.

Rising supply

The balance between supply and demand in the physical gold market also shifted in favour of buyers, during the second quarter. According to the latest figures from the World Gold Council, the supply of new gold to the market rose by 10% to 1,078 tonnes, compared to the same period last year, while demand fell by 15% to just 972 tonnes, down from 1,148t during the Q2 2013.

The big changes were in the jewellery market and the investment gold market. In jewellery, demand fell from 727t during the second quarter of 2013, to just 518t during the same period this year the lowest level since Q4 2012. Similarly, demand for gold bars and coins was down heavily, dropping to 275t down from 286t in Q1, and from 628t during the second quarter of 2013!

ETF outflows also continued, with a further 40t flowing out of physical gold ETFs during the second quarter, taking the total outflows for the last four quarters to 344t, which is equivalent to 8% of total 2013 gold supply.

Mining update

Gold mining shares have been relatively quiet this week, with no major news.

Debt-bound Russian gold miner Petropavlovsk fallen back to 34p, after last weeks sharp rally, but African firm Amara Mining (LSE: AMA) has held onto the gains it made last week, after reporting strong drilling results from the Yaoure Gold Project, which included an intercept of 17m at 7.35 grammes/tonne.

Amaras share price has risen by 59% so far this year, making it one of the strongest performers in the sector.

Many experts recommend gold as part of a balanced portfolio, but investing in small-cap explorers such as Amara is a high risk route to a million-pound portfolio.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

It Could Be Time To Sell Balfour Beatty plc And Buy Carillion plc…

Carillion(LSE: CLLN) has given up its pursuit of peerBalfour Beatty(LSE: BBY) and now Balfours investors should sell up and side with Carillion, I say.

Balfour has made multiple mistakes over the past 18 months and now its becoming hard to trust the companys management. Indeed, during the past 18 months, Balfour has warned on profits several times, lost itschief executive, Andrew McNaughton and is now trying to sell off the crown jewels, US-based Parsons Brinckerhoff, to pay down debt.

Breaking downBalfour Beatty

The deal between Carillion and Balfour broke down despite Carillions sweetened offer and proposed cost-saving synergies.

Balfours board of directorsunanimously decided that Carillions sweetened offer was not in the best interests of its shareholders. Instead, Balfours board stated thatits turnaround strategy, centred on the sale ofParsons Brinckerhoff, would be better for shareholders in the long-term.

Many analysts have disagreed with this view, as it is widely believed that Parsons is one of Balfours most profitable businesses. The sale of the American outfit is expected to raise 700m, which will be used to pay down debt, fill a hole in Balfours pension schemes and return 200m to shareholders.

Some shareholders havepointed out that after this sale Balfour will have a rock solid balance sheet. The business will also be UK focused, allowing the company to benefit from a UK economic recovery. Others are not so sure.

Poor record

When it comes to past performance, Carillion and Balfour are in completely different leagues. For example, over the past few years Carillon has met and outperformed several self-imposed targets and acquired two additional businesses,Mowlem and Alfred McAlpine, where cost saving synergies comfortably exceeded initial expectations.

Balfour, however, has not been so successful. If you strip out profits from joint ventures and Balfours asset sales, underlying pre-tax profits have fallen from 271m in 2011 to 79m in 2013. These figures include 70m of cost savings. During the first half of this year Balfours pre-tax profit fell to 22m, from 47m reported a year ago.

Carillions pre-tax profit has remained more stable, falling from 143m reported at the end of 2011 to 111m in 2013. Carillions management also seems keen to seek out value-creating deals for investors, whereas Balfours management is tearing the company apart.

Attractive income

While Carillion may be a better investment than Balfour, theres one thing that the two companies have in common, a hefty dividend payout.

Indeed, right now Carillion offers a dividend yield of 5.3% and Balfour supports a yield of 5.9%. For the time being, Balfours payout looks secure as it is covered around one-and-a-half times by earnings per share. That said, with Balfours profits slumping the company could be forced to cut the payout in order to conserve cash.

On the other hand, Carillion’s dividend payout is covered twice by earnings per share, giving the company more room for maneuver. Still, if Balfour and Carillion are not your cup of tea there are plenty of other opportunities out there.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

British American Tobacco plc Could Be Worth 4084p!

british american tobacco / imperial tobacco

The last six months have been particularly strong for British American Tobacco (LSE: BATS) (NYSE: BTI.US), with the companys share price rising by 11% while the FTSE 100 is flat over the same period. However, there could be more to come from the tobacco major and its shares could be worth 4084p. Heres why.

Long-Term Potential

Clearly, smoking cigarettes is becoming less popular in developed nations as regulatory restrictions on the activity as well as social changes have meant that fewer people now smoke. However, in recent years there has been an explosion in the popularity of smokeless tobacco products such as e-cigarettes that contain nicotine, but not the tar and chemicals found in normal cigarettes. As a result, they are believed to be less bad for peoples health and, at least partly because of this, they are becoming increasingly popular especially among younger people.

This presents a huge opportunity for tobacco companies and for British American Tobacco in particular. Thats because it has invested heavily in its Vype e-cigarette line, with the product having been on sale for over a year. It has therefore stolen a march on many of its rivals and gained a foothold in the $1 billion industry. This could help to deliver a stronger growth rate for British American Tobacco moving forward.

A Top-Notch Yield

As well as growth potential, British American Tobacco also offers investors great income prospects. At present, shares in the company yield a very attractive 4.2%, which is considerably higher than the FTSE 100s yield of around 3.5%. However, there is scope for British American Tobacco to be a lot more generous when it comes to dividend payments. Indeed, its payout ratio (the proportion of profits paid out as a dividend) is just 69%. Certainly, British American Tobacco needs to invest in new plant and machinery, but as a mature company in a very mature industry, it appears to have the scope to pay out a greater proportion of profit as a dividend.

For instance, if it were to pay out 75% of profit as a dividend and still yield a very attractive 4.2%, it would mean shares in the company trading around 7% higher than their current level. In addition, British American Tobacco is forecast to increase dividends per share by 7.4% next year, which is being funded by earnings growth of 8% rather than a higher payout ratio. Applying a higher payout ratio to next years higher dividend (and maintaining the same yield of 4.2%) would mean shares in British American Tobacco would trade at 4084p, which is 15.5% higher than the current price of 3537p.

Looking Ahead

While a rise of 15.5% may not sound too much, British American Tobacco is a hugely consistent company when it comes to earnings and dividend growth. Therefore, over the longer term (and with a potential boost from e-cigarette sales), shares could go much higher. Over the medium term, though, a rise of 15.5% looks very achievable and, when added to a yield of 4.2%, means that a total return of over 20% is a realistic goal for investors in the company.

Of course, there are other companies besides British American Tobacco that have bright futures. That’s why we’ve put together a free and without obligation guide to 5 shares that could boost your portfolio.

These 5 companies offer a potent mix of reliable dividends, strong growth prospects and attractive valuations. As such, they could make a positive impact on your finances and make 2014 and beyond even better years for your investments.

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Peter Stephensowns shares in British American Tobacco. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Are Persimmon plc & Berkeley Group Holdings PLC Better Income Investments Than National Grid plc?

When most investors go hunting for income, they look to defensive companies likeNational Grid(LSE: NG) (NYSE: NGG.US). However, a new breed of income stock has just sprung up and many investors are missing out on a great opportunity.

A new breedhousebuilding

Homebuilders,Persimmon(LSE: PSN) andBerkeley Group(LSE: BKG) now offer a more attractive dividend yield than slow and steady National Grid.

Indeed, thanks to the surge in the demand for new, affordable housing within the UK, homebuilders are seeing their profits explode. For the most part, these profits are being returned to investors and Persimmon, as well as Berkeley are treating their shareholders like kings.

For example, Persimmon announced a strategic plan during 2012 to return 1.9bn to investors, around 6.20 per share, over the next nine years. Due to the improving housing market, however, the company has decided to speed up this cash return.The first two payments of surplus capital, totalling 1.45 per share, or 442m, were made on 28 June 2013 and on 4 July 2014.

The third payment is scheduled for July 2015 and is expected to be around 0.95p per share, for a total of 290m.

All in all, these special payments, and the companys regular dividend will add up to a dividend yield of 5.8% for this year. Further, the City is predicting a dividend yield of 7.3% for next year. The payout both this year and next will be covered one-and-a-half times by earnings per share.

Persimmon currently trades at a forward P/E of 11.8 and a 2015 P/E of 9.7. So not only is Persimmon a dividend champion but the shares are cheap.

ngThe old guard

Persimmons hefty dividend yield and low valuation makes National Grid look really unattractive. Indeed, National Grids dividend yield is expected to average 5% over the next two years. The payout is covered one-and-a-half times by earnings.

Whats more, at present levels National Grid looks expensive. The companys shares are currently trading at a forward P/E ratio of 16.1, falling to 15.3 by 2016.

And its not just Persimmon that looks more attractive than National Grid. Berkeley Group has also begun returning impressive amounts of cash to investors and the company now offers one of the best dividend yields around.

Specifically, the City expects that Berkeleys shares will support a dividend yield of 7.7% next year, followed by a yield of 6% the year after. Analysts believe that these two payouts will be covered between 1.2 and 1.5 times by earnings per share.

In addition, like Persimmon, Berkeley is trading at a bargain basement valuation. Berkeley currently trades at a forward P/E of 11.1 and City analysts believe that this will drop to 10.2 by 2016.

What to do

Still, I strongly suggest that you do some further research before making any trading decision regarding Berkeley or Persimmon. Actually, before you make a decision, why not check out this free, brand new and exclusive reportthat singles out even more FTSE 100 winners to really jump start your investment income.

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Rupert Hargreaves has no position in any shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Premier Oil PLC vs Tullow Oil plc: Which Best Complements BP plc & Royal Dutch Shell Plc?

oil rig

Its been an encouraging year-to-date for Premier Oil (LSE: PMO) with the oil producer seeing its share price rise by 9% since the turn of the year. This easily beats the flat performance of the FTSE 100 and is well ahead of the 16% decline in Tullow Oils (LSE: TLW) share price. However, does this mean that Tullow Oil is now a better value play than Premier Oil, or is Premier Oil still the best stock to complement Shell (LSE: RDSB) and BP (LSE: BP) in your portfolio?

Mixed Results

Todays results from Premier Oil were a mixed bag. While the company experienced a strong six months in terms of production levels, the bottom line was severely hit by impairment charges. These resulted from a review into the longer-term assumptions that the company uses when forecasting operating, maintenance and decommissioning costs. Their overall impact on costs was significant, with Premier Oils cost of sales increasing by 37%.

However, there was also a positive one-off item; namely a tax credit that, when taken together with the previously mentioned impairments, meant that the companys earnings per share (EPS) rose by 7.5%. The key message from the release, though, is that Premier Oils output is strong and the company has maintained its full year guidance.

Growth Potential

Looking ahead, Premier Oil appears to have huge potential. For instance, EPS is forecast to increase by a huge 27% this year, and by a highly impressive 12% next year. Both of these numbers are strong, but are dwarfed by Tullow Oils growth potential, with it due to deliver EPS growth of 52% in the current year and 59% next year.

Valuation

Where Premier Oil offers more upside, though, is in terms of its current valuation. Shares in the company currently trade on a price to earnings (P/E) ratio of just 10.2, which highlights that there is significant scope for an upwards rating revision. Indeed, Tullow Oils P/E is a much higher 42.1, which shows that although it has a higher growth rate, Tullow Oils future potential could already be priced in.

Of course, when the growth rates and valuations are combined, both Premier Oil and Tullow Oil appear attractive. Their respective price to earnings growth (PEG) ratios are just 0.4 and 0.8. However, even on this metric, Premier Oil looks the more attractive of the two and seems to offer a highly potent mix of great value and strong growth prospects.

The Oil Majors

Clearly, the two oil majors Shell and BP also have huge potential as investments. They both offer top notch yields of 4.8% (BP) and 4.5% (Shell). Furthermore, they offer a diversity that neither Premier Oil or Tullow Oil are able to provide their investors, since BP and Shells balance sheet contain a wide range of high quality assets across the globe. So, while earnings growth may be higher at Premier Oil and Tullow Oil than it is at BP or Shell, the two majors still appear to offer investors a great deal moving forward.

In addition, both Shell and BP are attractively priced and trade on P/E ratios of just 11 and 10.1 respectively. As a result, both companies could be worth buying, with Premier Oil appearing to be the perfect complementary growth play for one or both of the oil majors.

Of course, there are other stocks and other sectors that could have bright futures. That’s why we’ve put together a free and without obligation guide to where we think the smart money is headed.

You can put the guide to use right away on your own portfolio. It could help you unearth a diamond in the dirt and find sectors and stocks that you wouldn’t normally have come across. As such, it could make a positive impact on your finances in 2014 and beyond.

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Peter Stephens owns shares of BP and Royal Dutch Shell B. The Motley Fool UK has recommended shares in Tullow Oil.We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Can You Trust Wm. Morrison Supermarkets plc’s Management?

Morrisons(LSE: MRW) is facing acrisis as customers turn their back on the retailer in record numbers.

At times like this, shareholders look to management to provide a killer and drastic turnaround plan. However, Morrisons management has not come up with a plan to rescue the retailer.

As management continues to ignore the severity of the situation, tensions between investors and the company are rising.

Tensionsmorrisons

Tensions between shareholders and management have been brewing for some time but came to a head earlier this year at the companys AGM. At the AGM, One of the companys largest shareholders,former chairman, and now Life President of the company, Sir Ken Morrison, blasted the companys current management.

The former chairman told the current board that the groups losses were disastrous and the company had failed to run its core supermarkets properly:

I personally thought they[the results]were disastrous. I warned in 2009 and 2012 that changes being implemented by directors would seriously damage the business [my comments] were absolutely right and today we have seen the consequences.

Out of touch

Its easy to see why Sir Ken is frustrated. Morrisons current management seems to be out of touch with the UKs changing retail landscape.

For example, the Bradford-based retailer has recently announced that it will extend opening hours to 6am to 11pm at 230 of its 490 shops. Morrisons claims that it is making this changeto meet the demands of modern life. However, the companys peers have all offered extended opening hours for years.Many Tesco and Asda supermarkets are open for 24 hours.

Whats more, Morrisons lags in the convenience store market.Tesco has more than 10 times as many convenience stores as Morrisons all of Tescos convenience stores offer extended opening hours and can open longer on Sundays.

Some progress

Nevertheless, management has made some progress recently. The company has cut prices andrebased its profit margin within the past few months. Still, analysts say that it could take six to 12 months before these lower prices boost trading.

Unfortunately, with profits falling and no turnaround in sight any time soon, Morrisons hefty dividend yield looks to be under threat. Indeed, a dividend yield of around 7.4% suggests to me that themarket does not think the payout is sustainable.

Further, the figures also suggest to me that the companys payout is set for the chop. Specifically, current City forecasts only expect Morrisons to report earnings per share of 12.1p for 2015, while the company is expecting to payout a dividend of 13.5p per share. These figures imply that Morrisons could be forced to either cut its payout or borrow to fund the dividend.

Cant be trusted

Its obvious that Morrisons management can no longer be trusted after making so many mistakes. So, perhaps its time for investors to hunt out better returns elsewhere.

Indeed, Morrisons’ dividend payout on the chopping block income investors will want to get out ahead of a possibly payout cut.

To help you find other opportunities, the Motley Fool’s top analysts have put together this free report entitled“How To Create Dividends For Life”.

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Rupert Hargreaves owns shares of Morrisons and Tesco. The Motley Fool UK own shares of Tesco. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

4 Stocks That Offer Growth At A Great Price: ARM Holdings plc, Prudential plc, easyJet plc & Sports Direct International Plc

Cash

With the FTSE 100 recovering somewhat from its summer blues, it feels as though investors are in a more risk-on mood. Indeed, even the Bank of England is apparently starting to think that the UK economy is back on-track, with two of their committee voting in favour of interest rate rises this week.

Of course, growth stocks are out there, but they often come with a hefty price tag that means most (if not all) of their strong prospects are priced in. However, having scoured the FTSE 100, here are four top-quality growth prospects that dont cost a fortune.

ARM

The last month has seen shares in ARM (LSE: ARM) rise by 12%, which is hugely impressive. It still means, though, that they are down 14% year-to-date, but the company seems to be on the right track following an upbeat update. Indeed, ARM is forecast to post earnings per share (EPS) growth of 10% this year and 23% next year. With shares having fallen over the last year, they now trade on a lower price to earnings (P/E) ratio of 33.1. This is clearly a lot higher than the FTSE 100s P/E of 13.7, but when it is combined with a strong growth rate in earnings, it equates to a price to earnings growth (PEG) ratio of around 1.5. For a high-quality company such as ARM, this seems very reasonable.

Prudential

Although the current year looks set to be something of a disappointment compared to recent years, Prudential (LSE: PRU) is still an attractive growth stock. Certainly, 5% growth in EPS (which is expected this year) is a fall from the 18% average of the last five years, but with the companys bottom line set to increase by 12% next year, it appears as though Prudential will quickly get back on-track. With shares currently trading on a P/E of just 14.8, this equates to a PEG ratio of 1.2, which remains very enticing indeed.

EasyJet

Despite the price of oil fluctuating wildly, EasyJet (LSE: EZJ) is able to remain remarkably consistent when it comes to earnings growth. Thats why the last four years have seen the company post positive growth, while the next two are expected to continue that trend, as the companys bottom line is due to increase by 12% in both years. Furthermore, EasyJet has a low valuation as well as strong, reliable growth prospects. Shares in the company trade on a P/E of just 11.8, which equates to a PEG ratio of just under the sweet-spot of 1.0. This makes EasyJet hugely appealing right now.

Sports Direct

With UK interest rates set to stay low for a good while, Sports Direct (LSE: SPD) seems to be well-placed to take advantage of buoyant consumer spending. The company is forecast to deliver yet more double-digit earnings growth over the next two years, with the bottom line due to increase by 23% this year and by 18% next year. Although it trades at a substantial premium to the FTSE 100s P/E (18.4 versus 13.7 for the wider index), its strong growth potential mean that a PEG ratio of less than 1 is on offer. Therefore, alongside ARM, Prudential and EasyJet, Sports Direct seems to be a stock that offers growth at a great price.

Of course, they aren’t the only companies that could have bright futures. That’s why we’ve put together a free and without obligation guide to 5 shares that could beat the FTSE 100.

These 5 companies offer a potent mix of exciting future prospects and great valuations. As such, they could make a positive contribution to your portfolio and mean that 2014 and beyond are even better years for your investments.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended shares in ARM Holdings. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Once Again, The FTSE 100 Shows Why You Should Never Time Markets

stock exchangeOne of the most important investment lessons you will learn is that you cant time the market. Unfortunately, too many investors think theyre an exception to this rule, especially in the early years of investing.

Some people time marketsfor a career. Fund managers are forever issuing notes explaining why now is the time to buy, say, technology start-ups, defensive blue-chips, emerging market debt or German bunds.

Many private investors do it out of fear. A few more bombs go off in the Middle East, the Baltic Dry Index flashes red, or US central bankers hint at a base rate hike, and they sell in advance of the anticipated crash.

Sometimes they get it right. Usually not, though.

Nine Times Loser

The law of averages suggest you should time the market correctly at least half the time, but for some reason it doesnt work that way.

Whenever I tried timing the market, I called it wrong around nine times out of 10. It seemed to take delight in doing exactly what I didnt want it to do.

The stock market is a proud and capricious beast. It doesnt like people trying to second-guess its movements.

So please, dont try.

Dont Kid Yourself

Here at the Fool, we are tough on market timing, tough on the causes of market timing.

The causes are naivety (I know whats going to happen next), short-termist thinking (Ill make a quick buck) and vanity (Im clever enough to call this right even though no-one else can).

The result is usually failure.

Yes, some people get it right, but they are the exception rather than the rule, and thats why we remember them.

Few repeat the trick.

Timing Isnt On Your Side

The last week has confirmed, once again, that trying to time the market is a mugs game. At the start of last week, the FTSE 100 seemed primed for the long-awaited correction.

The march of Isis, bloodshed in Gaza, confrontation in Ukraine, deflation in Europe and slowing earnings in the US could only mean one thing: trouble.

Everybody agreed on that. Then, with the FTSE 100 down almost 5% on its year-high of 6878, a strange thing happened. It delivered five consecutive days of growth instead.

Isis, Gaza, Ukraine, Europe and the US hadnt gone away, but sentiment had shifted. A few bombs from the US, a few slightly soothing gestures from Vladimir Putin, dovish words from the Fed, and all was right with the investment world.

One day, everybody is sad and scared. The next, theyre happy and free. Nothing much changed in between.

Nobody could have foreseen that.

Hindsight Is Better Than Foresight

You cant predict the next market movement, but you can take advantage of movements that have already happened.

The FTSE 250is currently down 6% from its year-high of 16,728. It yields 2.6%, and is valued at 18.4 times earnings. The index may fall further, it may climb higher, nobody knows.

The only thing you can say for certain is that you are buying the index 6% cheaper than in February. It doesnt take mystical foresight to seethat.

If it subsequently falls another 5%, well, you can always buy more.

Time, Not Timing

Or you could buy a FTSE 100 tracker, also tempting, with the index trading at an attractive valuation of 13.6 times earnings, and yielding 3.43%.

Then all you have to do is hold it for the long term. Eventually, stock markets will be much higher than they are today, and you will make money.

Naturally, I cant tell you when that will be. You just have to give it time.

You can’t time your investments, but you can choose the right stocks. At the Motley Fool, we reckon we have uncovered The UK’s Top Growth Stock for 2014 And Beyond. This company looks set to offer Super-Charged Returns To Investors. To find out which stock we rate so highly, Click Here Now.

Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Leni Gas & Oil PLC Targets Completion Of Latest Drill Site For Production


Leni Gas & Oil (LSE: LGO), the Trinidad-focused oil explorer, declared that the fifth of its planned development wells at the Goudron field has been successfully drilled to a depth of 1,946 feet. Well GY-668, which was successfully spudded earlier this month, intersected 191 feet of net oil play in the Goudron Sandstones.

oilIt is the fourth and final well at the drill site. Neil Ritson, LGOs chief executive, said: We are continuing to deliver a successful drilling programme at Goudron and are now looking forward to completing these four wells for production.

The well is preparing to drill to the primary Gros Morne sandstone oil target expected at approximately 2,150 feet TVD (true vertical depth). The bottom hole location is approximately 680 feet west of the drills surface location.

In separate news, Leni Gas also confirmed that construction of a new 2,000 barrell sales tank has been completed, which will be installed adjacent to two sales tanks at the Goudron Field, increasing the total daily export capacity to approximately 2,750 barrels of oil per day.

Shares of Leni Gas and Oil remained flat (at 3.5p) in early trade. The shares have soared 375% year to date.

But if you feel like you’ve missed out on the rally, then fear not, because the Motley Fool has discovered an under-the-radar hidden gemwhich could double profits within four years. The market hasdiscounted its excellentprospects — which is why we’ve made it “The Motley Fool’s Top Growth Stock For 2014!

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Mark Stones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Why Did Quindell PLC Results Fail To Ignite The Firm’s Share Price?


quindellOn the face of it, there was a lot to like in this mornings interim results from Quindell (LSE: QPP).

Sales up 118% to 364.2m.

Pre-tax profits up 292% to 153.7m.

Cash generation of 220m.

To top it all off, Quindell share trade on a crazily low 2014 forecast P/E of just 3.5!

So why did Quindells share price fall steadily when the markets opened?

Profitable claims

Lets start with a closer look at Quindells profits. During the first half of this year, Quindell reported adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of 156m.

Of this, 101m (65%) came from Quindells Legal Services division, which handles compensation claims, while a further 14.2m (9.1%) came from its Health Services operations, most of which are linked to the personal injury claims handled by Quindells legal services division.

In other words, 74% of Quindells profits were derived from compensation claims during the first half of this year, making it clear that this is currently Quindells main line of business. This is a cause for concern for some investors, who question its sustainability.

Telematics profits

The remainder of the firms profits came from its Digital Services division, which includes the firms motor insurance telematics business, where EBITDA rose by 250% compared to the same period last year.

However, Quindell didnt address recent concerns about its large telematics deal with the RAC, instead simply stating that certain contracts are being restructured another warning flag.

What about cash generation?

Quindell has been criticised for its lack of cash generation in the past, and seems to be working hard to fix this.

Cash generation during the first half was 220m, which the firm says represents 80% of receivables at the end of 2013, excluding noise-induced hearing loss cases, which are a new growth area this year.

However, despite improved cash generation, the influx of new business seen during the first half means that Quindells receivables rose to 560m at the end of June, up by 71% from 327m at the end of 2013.

Quindell said today that it has never written down any significant amount of receivables, but such a large increase may raise concerns that not all of this money will be recoverable.

Should you buy it?

The problem for Quindell is that the market just isnt buying the firms story, despite the apparent progress signalled in todays results.

Going against such a distressed valuation takes a strong nerve.

The eventual profits could be massive, but Quindell shares could also become worthless, if the firm’s detractors are proved to be correct.

It’s a personal decision — but if you’re still unsure, I’d recommend a look at Ten Steps To Making A Million In The Markets, an exclusive wealth report from the Motley Fool, which sets out a simple 10-step process that could help you build a million-pound portfolio with surprising speed.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Femi Ogunshakin Managing Director
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