Indus Gas(LSE: INDI) andIGAS Energy(LSE: IGAS) have one thing in common: the two companies have huge potential.
Indeed, even though the two oil & gas minnows operate in different regionsof the world, they are both severely undervalued and have a huge amount of untapped potential.
Undervalued
Indusholds a participating interest in a petroleum exploration and development concession in India known as Block RJ-ON/6.
According to the recent competent persons report on the block,RJ-ON/6 has proven plus probable reserves of 872 billion cubic feet equivalent of natural gas. And Indus accountants believe that this resource could be worth $2.3bn to the company, before capital expenses, or $1.8bn net of capital expenses.
Indus market capitalisation is only 224m at time of writing.
Whats more, unlike many of the markets smaller oil & gas companies, Indus is already profitable and generating cash. City analysts expect the company to report earnings per share of 10.4p for this year, which means that the company is currently trading at a forward P/E of 8.1.
Further, analysts expect Indus earnings per share to jump 170% during 2016 to 28p. On that basis, the company is trading at a 2016 P/E of 3.
So overall, based on Indus bargain-basement valuation and volume of untapped resource, the company has all the hallmarks of a potential multi-bagger.
Plenty of support
Unlike Indus, IGASs future is more uncertain. City analysts believe that the company will continue to lose money for the next three years. A pre-tax loss of 2.1m is expected for 2015, a loss of 6.4m is pencilled in for 2016 and a loss of 2.5m is expected for 2017.
Still, theres no denying that IGAS is well positioned for growth over the long term. The company has inked deals with several major partners over the past year, giving the group $285m of totalspend from third parties across its key shale gas acreage. This funding will cover the cost ofaround 15 wells, flow tests and gas handling stations.
Theres also IGASs recent deal with partner, INEOS to consider. Under the terms of the deal, INEOS will pay IGAS 30m for a 50% interest in several of the companys oil & gaslicences around the UK.
In addition, as part of the dealINEOS will fund a work program on the licences of up to 138m. The 30m cash infusion will help alleviate the pressure on IGASs balance sheet.
Foolish summary
All in all, its clear that Indus has the potential to become a multi-bagger from present levels, although IGASs future is more uncertain. That said, IGASs partners are some of the biggest energy companies in the world, and they wouldnt invest in the company unless it had a bright future.
However,before you make any trading decisionI strongly recommend that you do some additional research of your own — you may come to a different conclusion.
To help you assess the company, our top analysts have put togetherthis new report from The Motley Fool.
The report guidesyou through the seven key steps all successful investors follow before making an investment. And the report teaches you everything you need to know in under 20 minutes!
Don’t delay, this report is only available for a limited time. Soclick hereto read your copy of thefreereport today!
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.