2014 has been a dismal year for investors in JKX (LSE: JKX), with shares in the exploration company falling by as much as 50% since the turn of the year. However, with positive news flow being released today, they have jumped by 13%. Could things finally be on the up for the company?
Positive News Flow
Indeed, JKX released two positive pieces of news flow today. The first is the completion of phase 1 work on an upgrade to the production facility it operates at the Elizavetovskoye field. This is significant for JKX because it doubles the plant capacity to around 30 million cubic feet per day and, with phase 2 set to commence shortly, means that the asset could make an even bigger impact on the companys production levels moving forward.
The second positive piece of news flow is the award of a 20 year production licence at the same field. This replaces the 5 year production licence that was due to run until November and provides the company with a degree of certainty moving forward.
However, this added certainty is all relative. Thats because JKX is heavily focused on operations in Ukraine and Russia and, as such, has seen its share price marked down due to the insecurity of the region. For example, JKXs bottom line is set to be hit by the emergency legislation that was passed recently by the Ukraine government, which increases taxation on gas production to 55%. Indeed, it is estimated that the increased level of taxation will cost JKX around 6 million per annum and lead to a reduction in investment in the region.
Due to the uncertainty faced by JKX, shares in the company trade at a very low valuation. For example, they have a price to earnings (P/E) ratio of just 7 despite profit being forecast to increase by 200% in the current year. Furthermore, although the last four years have been hugely disappointing, with JKXs bottom line declining in each of them, the company remains profitable and, as todays news flow highlights, could have a prosperous future.
Certainly, there is likely to be significant volatility and further uncertainty moving forward, but JKX could prove to be a rewarding, if highly risky, investment over the long run.
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Peter Stephens 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.