Three of todays biggest risers are Falkland Oil and Gas (LSE: FOGL), Victoria (LSE: VCP) and APR Energy (LSE: APR).
In this article Ill explain whats driving todays gains, and whether this news males any of these companies a buy.
Falkland Oil and Gas
Shares in Falkland Oil and Gas have risen by 23% to 26p today.
The company hasnt issued an update to the stock market since 25 August. However, the results of the companys Humpback exploration well in the South Falklands Basin are expected any day now.
Falkland Oil has a 52.5% interest in Humpback, which is targeting net prospective resources of 268m barrels of oil.
I suspect todays surge could indicate an early move by traders betting that the firm has made its third oil discovery of the year.
While the earlier Isobel Deep and Zebedee discoveries lie close to the earlier Sea Lion discovery, a big find at Humpback could open up a whole new oil play in the region.
Im not sure Id buy after todays surge, but the shares could be worth watching for further news and a better buying opportunity.
Victoria
Carpet manufacturer Victoria has surged 12% higher today, after announcing a major acquisition.
The 65m deal will see AIM-listed Victoria take control of Interfloor Group, a leading UK manufacturer of carpet underlay.
To fund the transaction, Victoria has also announced the placing of 3,617,891 new shares in the company. This will raise a total of 44.5m, but it will create significant dilution, increasing Victorias share count by around 25%.
The good news is that todays acquisition should generate more than enough additional profit to offset this dilution. Todays announcement says that Interfloor generated earnings before interest, tax, depreciation and amortisation (EBITDA) of 10m last year. Victoria says that this will provide a material earnings uplift.
Id now expect broker forecasts for 2015 and 2016 earnings to rise significantly, perhaps by 10%. However, at todays share price, even a 10% earnings hike would still leave Victoria shares on a 2016 forecast P/E of 21.
With a yield of less than 1%, thats not cheap enough to tempt me.
APR Energy
Shares in temporary power firm APR Energy gained 10% on Friday morning, after the firm said it had managed to remove all of its equipment from Libya.
Good news, but the firm has already said that the Libya demobilization was more expensive than anticipated. Thats a problem, as APR cant afford to overspend on anything at the moment.
In Augusts interim results, the firm warned investors of an expected covenant breach at the end of the third quarter.
If APR breaches the terms of its loans, then the firms lenders may be able to force APR to raise some cash. This could mean a forced sale of assets, costly new loans or a heavily discounted rights issue. All of these would be likely to destroy APRs share price.
To avoid this risk, APR needs to refinance its loans before 30 September. However, I suspect the firms lenders will wait until after then, to strengthen their negotiating position.
APR shares have recently risen from a low of around 60p to todays price of 117p. In my opinion, now could be a good time to sell.
If you’re looking for a small-cap buy in today’s volatile market, I’m not sure that any of these companies are a compelling buy.
I’m more interested in a firm which the Fool’s top small-cap experts have chosen for “1 Top Small-Cap Stock From The Motley Fool“.
The company concerned is operating in a fast-growing industry. The Fool’s experts believe the shares’ current value does not reflect potential profit growth.
They believe gains of up to 40% could be on the cards.
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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.
