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This week I have been out and about meeting the men behind CLEARSTREAM TECHNOLOGIES (CTN) and AFC ENERGY (AFC). Shares in the former are an absolute steal, while those of the latter have been racing ahead in the last few days. You can read more about both below.
I have also been checking the temperature in the City and found it to be pretty hot. In fact one experienced trader likened today's plunge into resource stocks with the 1990 dot-com mania. I would not push this analogy too far because while many resource juniors look as if they could be making big money in the next few years so long as product prices stay high the dot-commers had little more than whizzy names and sexy-sounding business plans.
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But still an excess of enthusiasm always makes me feel wary. And since I would rather lighten the Red Hot portfolio when the market is strong and not when it is weak I am going to call time today on FORUM ENERGY (FEP).
Two things make me uncomfortable about Forum. The first is that, because of the development of the USA's shale gas fields the price of gas is low relative to its historic relationship with oil and seems destined to stay that way.
My second concern is that the future of Forum seems to be being decided in the Philippines and frankly I doubt that the majority Filipino shareholders and the country's government officials have UK private shareholders at the top of their list of priorities. I am uneasy here, so SELL.
Now before I get to all the news, I want to tell you about a reader who contacted me and said she had heard that I was tipping JSJS. Where that rumour came from goodness only knows! I have never even heard of JSJS!
So I want to assure you that all my views are to found in Red Hot Penny Shares and in my free email service Penny Sleuth.
If you want to know what I am thinking then read these and don't take any notice of anything else. I would sooner go into the ladies' loo than frequent chat rooms and bulletin boards. I dare say there are unscrupulous folk who think they might gain an advantage by attaching my name to some silly story.
But unless you read it in Red Hot or Penny Sleuth, take no notice!
And now on to the week's news:
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| RHPS | 0.70% | 5.70% |
| FT Small Cap | 0.80% | 3.20% |
| AIM | 1.00% | 4.00% |
| AFC Energy | +54% (see below) |
| Berkeley Mineral Resources | +12% |
| CSF Group | +7% |
| Range Resources | -11% (see below) |
| Forum Energy | -10% (see above) |
| Bango | -10% |
AFC ENERGY (AFC): We could be on to something here! On Wednesday I paid my third visit to AFC's headquarters at the Dunsfold Business Park near Cranleigh, where I met Howard White, Chief Executive Ian Balchin and the exceptionally impressive and bright Chief Technical Officer Dr Gene Lewis (who incidentally abandoned Ceres Power in favour of AFC's superior technology).
In a nutshell AFC has designed a low cost, low maintenance, easy to manufacture and cheap alkali fuel cell. These generate power in a very efficient manner by converting hydrogen into electricity, and are a rival to traditional turbines. So the next question is where does the hydrogen come from? The first and most obvious target is the huge chlor-alkali industry which uses 1% of the world's electricity and produces millions of tons of hydrogen, all of which is currently wasted.
AFC has demonstrated that its fuel cells can take this hydrogen and convert it into power, and it is likely to receive its first commercial revenues from Akzo next year, with other chlor-alkali producers likely to follow. Further out AFC is targeting the waste industry and the coal industry. Both of these can generate synthetic gas (in the latter case by burning the coal underground) and the hydrogen can be split from this synthetic gas and used to feed the fuel cell.
Fuel cells are not new, but Dr Lewis emphasized that dramatic changes in materials technology often originating in the electronics industry have enabled AFC to produce low cost fuel cells in a way that would not have been possible just a few years ago. So AFC's fuel cells are now ready to hit the market, they have already been included in a number of innovative trials around the world and have attracted a great deal of interest from major companies.
The shares have had quite a run this week inspired first by a Reuters article and then by news that Linc Energy, an Australian company that is keen to use AFC's fuel cells in Underground Coal Gasification projects, has invested £2.97m in newly issued shares. Along with money raised from other new investors AFC now has some £5m of cash in the bank. My target price is 50p but with the shares now above my 25p buy limit, HOLD
CLEARSTREAM TECHNOLOGIES (CTN): Clearstream reported a profit of €0.5m for the year to July 2010, compared to €1.9m the year before. However this headline figure is struck after an increase in R & D spending from €1.1m to €1.7m, some one-off payments to a major customer, Bard, and the cost of increasing its manufacturing capacity in Ireland. A better measure of Clearstream's progress is provided by its turnover, which rose from €12.5m to €14.7m (excluding one-off payments) but even that hides the true picture.
Clearstream makes innovative catheters, stents and stent delivery systems and these are divided into two categories. The first of these is 'Coronary;' where sales are fairly flat and there is some price competition, but the second is 'Peripheral'. Here Clearstream is making catheters and stents to be used at the body's extremities, notably the feet. Clearstream is a leader in this category, which is growing fast. Last year sales of 'Peripheral' devices rose by 56% and now account for 60% of the total. Now that Clearstream has installed and paid for its new manufacturing capacity the outlook is for strong sales growth and a widening of profit margins.
Broker finnCap is forecasting sales of €19.5m this year, and given that this is little more than the run rate achieved in the final quarter of 2009/10 this looks conservative. finnCap expects Clearstream to achieve a profit this year of €0.5m for earnings per share of €2.1. For the following year it projects sales of €25.0m, a profit of €3.8m and earnings per share of €10.4. Converted into Sterling that implies that the shares, at 25p, trade at under three times 2011/12 earnings.
For a world-beating medical devices company addressing an area of growing clinical need this rating is absurd. If Clearstream achieves these forecasts, and frankly I think they are quite conservative, I see the shares trebling at the very least, over the next eighteen months. Don't miss this one. BUY UP TO 30p
(Five year performance: 2005 -42.69% | 2006 +12.24% | 2007 -35.45% | 2008 -45.07%| 2009 +25.64% | 2010 -1.02%)
FIRESTONE DIAMONDS (FDI): Frank Scolari's Obtala Resources, which obtained 22.6m shares in Firestone as a result of the take-over of Kopane has sold the lot to realize a nice profit and free up some cash for other projects. With this overhang out of the way, we could now see Firestone recover some lost ground. BUY UP TO 42p
(Five year performance: 2005 +17.94% | 2006 -20.14% | 2007 +1.90% | 2008 -81.07%| 2009 +69.14% | 2010 -27.34%)
RANGE RESOURCES (RRL): Range has reported an increase in the reserves at its Russell-Bevly producing field in Texas. This is now estimated to contain 48.1bcf of gas, and 3.7mmbbls of oil with a discounted value to Range of $248m. It has also said that it intends to drill a horizontal well at its East Texas Cotton Valley Prospect and believes that this could also reveal new reserves. Range has a nice balance between politically safe production in the USA and its high risk exploration prospect in Puntland. BUY UP TO 6p
(Performance since listed: 2007 (October) -18.42% | 2008 -92.47%| 2009 +114.29% | 2010 +53.45%)
SIRIUS (SXX): Sirius has acquired additional license area adjacent to its existing properties in North Dakota, taking its total in the state to 18,500 acres including 7,425 that overlay the potash producing Williston Basin. It hopes to start exploratory drilling here before the end of the year. The share price continues to edge back towards my 5.5p buy limit. HOLD
Just before I go, if you're following the Falklands oil story, you've probably seen the big falls in some of the explorers over the last couple of days. The news relates specifically to delays to a report on Rockhopper's Sea Lion discovery in the North Falkland Basin.
After looking at currently available data, independent consultants said Rockhopper's reserves could be nearly a third less than previous estimates. Rockhopper's shares are down some 25% in the last two days. And Desire, also exploring in the North Falkland Basin, is down 33%.
These two companies are not Red Hot Penny Shares portfolio shares. And our own pick, FALKLAND OIL & GAS (FOGL), which is searching off the South and East of the Islands, has not been affected.
Still, I'll be keeping an eye on the story and will let you know if we need to take any action.
That's it for this week.
Until next time, good investing
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