Falling oil prices and a series of exploration disappointments have left the share price of North Sea oil producer Valiant Petroleum reeling. Despite being underpinned by the company's solid production and having its assets in a safe jurisdiction, the shares now trade at 30 per cent below their book value. Yet Valiant has strong cash flow and new production coming on line in the second half of the year, so we think the shares will be re-rated.
- Shares trade far below net asset value
- Resource shares should benefit from more quantitative easing
- Minimal financial risk
- Strong cash flow
- Limited near-term exploration upside
- Wholly focused on North Sea
Besides, central banks are once more turning to creating money - so-called quantitative easing (QE) - to stimulate their countries' stagnating economies. Riskier assets - such as oil and small-cap resource shares - often grab the big gains during the stock market rallies that follow these rounds of stimuli, and we see another rally on the horizon.