If are looking for value stocks in the oil world,at 450p a shareBP(LSE: BP)is a much better choice thanIthaca(LSE: IAE), whose stock was hammered in early trade today. Heres why.
Ithaca: Statement Of Claim
Todaysnews Ithaca notes that it has received a statement of claim from a law firm that advertises itself as undertaking investor lawsuits is hard to digest.
The statement of claim relates to purported misrepresentation of information regarding the past schedule for completion of the FPF-1 floating production facility modification works being completed by Petrofac, Ithaca said, adding that itvigorously refutes any such allegations and strongly denies any suggested wrongdoing.
Deleveraging Plan
The shares are still in negative territory at the time of writing, although they have bounced back from their lows well see how it goes, although this is an issue management could have done without.
Ithacarecently reported1Q15 production at 12,489 barrels of oil equivalent per day, in line with guidance, but its vital that it surprises the market with positive news in order to gain trust from investors after a year at the end of which it decided to cut capital expenditure by 60%, while shareholders saw the value of their holdings plunge by 62%.
While thisNorth Sea-focused oil and gas producer said earlier this month that it is fully funded and is moving into the deleveraging phase in the second half of 2015, its$99.9m first-quarter operating cash flow included $59.7m from the acceleration of oil price hedging gains, which was expected but doesnt strike me as being particularly good news.
To be sure, with total debt funding capacity of $950m in place, and with a fully drawn weighted average cost of debt of under 5%, the short-term outlook is safe but Ithaca must deliver, and swiftly.ItsGreater Stella Area assets represent a big commitment for a company whose enterprise value is more than four times the value of its equity. As such, keep an on the quality of its core cash flows.
BP: A Value Play
This is a completely different risk profile, of course.
I am a big fan of BP, and I think that at its current level of 450p a share, BP should be added to any diversified portfolio, with the aim of recording a +33% performance over the next 12 months, excluding dividends.
In fact, its strong assets base and forward trading multiples at 13x and 10x based on BPs net earnings for 2016 and 2017, respectively point to even greater upside over the medium term, one of the reasons being that BP seems to be very serious about its dividend policy, regardless of macroeconomic forces that play against its management team. Its forwardyieldat 5.7% is solid, and one element to consider is that its operating and net income margins are expected to grow at a faster pace into 2018 than they did in the past few years.
Finally, investors havent been particularly impressedwith the $70bn offer for BG by Shell, which seems to be too high, and may continue to favour BP over its rivals.Its shares have risen 22% since their one-year trough in mid-December: the rally is not over, in my view.
If you are after solid dividend investments that also offer meaningful capital gains, consider the companies thathave been included ina free value reportby our Foolanalysts– one transport operator, which I flagged some time ago, has recorded a three-month performance of 19%, and is expected to deliver a forward dividend north of 3%. Its trading multiples point to more upside ahead, and the sameapplies to a few high-yielding, defensive stocksincluded in our report.To find out more,click here right away!
Our report is freeand comes without further obligationfor a limited amount of time.
Alessandro Pasettihas no position in any shares mentioned. The Motley Fool UK has no poisition in any shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makesus better investors.
