Bargain shares on a tear

After my article was published a week ago the board subsequently announced a US$10m (£7.7m) share buy-back programme. The company has authority to repurchase up to 14.99 per cent of the 327m shares in issue as voted through by shareholders at the last annual meeting. All the shares will be purchased on-market and held in treasury, so this in effect creates a floor for the share price given the scale of the programme.

Other investors have cottoned on which is one reason why Bowleven's share price has risen by 30 per cent from 22p to 28.5p in the past week. The board have wasted no time either in starting the buy-back programme, purchasing 192,948 shares at 26p each in the market last Friday. At the current price Bowleven could acquire 27m shares, or 8.2 per cent of the issued share capital of 327m shares. The directors certainly have the funds to do so because the company had a cash pile of $100m (£77m) at the end of March 2016, and is due to receive $15m of deferred consideration next month as part of a farm-out deal on its Etinde Permit off the coast of Cameroon. Bowleven retains a 20 per cent non-operated interest in Etinde having completed a farm-out to energy giants Lukoil and New Age in March 2015.

The buy-back makes commercial sense too. That's because the company's current market value of £93m is only slightly Bowleven's cash balance once you factor in the receipt of the £11.5m deferred consideration due next month, and massively below its last reported net asset value of $367m (£282m). This means around $267m worth of exploration assets are effectively in the price for free. Or put it another way, the company is paying 28.5p a share in the market to get its hands on 86p a share of net assets, so this is hugely value accretive for shareholders. If the full $10m is deployed, and 27m shares are bought back at an average of 26p each, then I estimate that it will add around 5.5p a share to Bowleven's net asset value per share. The buy back is also a vote of confidence by the board in the company's prospects and its funding.

Bargain Shares Portfolio 2016 performance

Moreover, with the oil price almost doubling in value since hitting a multi-year low of $26 a barrel six months ago, and the shares still only trading in-line with cash even after last week's rise, we are getting a free ride on Bowleven's exploration assets. That's anomalous to say the least, a sentiment the board clearly share. Buy.

Amber Alert for huge net asset value gains

Shares in Aim-traded investment company Crystal Amber (CRS:166p) have also been on a tear, rising by 12 per cent since I highlighted a glaring valuation anomaly when the price was 148p just over a fortnight ago ('Amber Alert', 4 Aug 2016). The share price has achieved my initial target of 166p, but I now feel that it could have a lot further to run and with good reason.

That's because the company's investment portfolio has surged in value since Crystal Amber published its monthly net asset value of 161.4p a share at the end of July and that's after accounting for this month's payment of a 2.5p a share interim dividend.

In fact, having run through the company's 10 largest holdings, details of which are outlined in the table below, I estimate they are currently worth in total 170.5p a share, or 15.2 per cent more than their end July valuation of 148p. The primary reason for this sharp increase is a major re-rating in the company's 15.6 per cent holding in Hurricane Energy (HUR:29p), the UK-based oil and gas group focused on hydrocarbon resources in naturally fractured basement reservoirs. It's a small cap stock my colleague Alex Newman is rather keen on, having recommended buying Hurricane Energy's shares at 13p ('Here comes the hurricane', 12 May 2016), and so too is brokerage finnCap which initiated coverage at 23p last week with a price target of 50p. Clearly, some clients of the broking house have been heavily buying.

To put this into some perspective, Hurricane Energy's share price has surged by 61 per cent from 18p to 29p since Crystal Amber's portfolio was last valued at the end of July, so is by far the company's largest investment and one accounting for 45p a share of its net asset value, rather than 28.3p a share at the end of July.

Crystal Amber's Portfolio

It's not the only investment that has significantly re-rated as shares in Restaurant Group (RTN:420p), the chain behind eateries Frankie & Benny's, Chiquito, and Coast to Coast, have risen by 19 per cent since the end July portfolio valuation, and the holding in media group STV Group (STVG:362p) is up 12 per cent. Also, and as I flagged up in my previous article, a formal takeover bid for film studio Pinewood (PWS:562p) has been forthcoming. Crystal Amber holds a 5.7 per cent stake in Pinewood, worth 18p a share, so will shortly be holding 10 per cent of its net asset value in cash to provide ample firepower for new investments.

Investment upside potential

I would flag up too that there is significant upside potential in Crystal Amber's second largest investment, residential landlord Grainger (GRI:230p). The group has just issued a trading update for the 10 months to end July and one that makes for a good read.

Rents continue to increase on private rental sector (PRS) property and were almost 5 per cent ahead on new lets and 2.8 per cent up on renewals. In terms of the PRS development pipeline, Grainger has started or progressed with construction on a number of developments including Clippers Quay in Salford, Berewood and in Kensington and Chelsea. It was reassuring to see that Grainger has made £91m of sales in the year to date at prices almost 8 per cent above the September 2015 valuation and has a further £188m sales in the pipeline that have exchanged or are with solicitors. That's well worth bearing in mind because Grainger's shares are being rated 30 per cent below spot EPRA net asset value forecasts of 330p a share, a rating that seems completely out of sync with the operational progress being made and the solid asset backing. The holding in Grainger looks to have significant upside in my view.

Moreover, the 170p a share invested in its 10 largest holdings aside, a valuation which exceeds Crystal Amber's current share price, the company owns other investments worth a total of 13p a share as per their end-July valuation, and has net cash of 0.4p a share. So by my calculations, Crystal Amber's spot net asset value per share is around 184p, or a thumping 14 per cent above the end July valuation of 161p.

Trading 10 per cent below my estimate of net asset value, with the board using surplus cash to make net asset value accretive share buybacks to narrow the share price discount - the company has just appointed Numis Securities to make non-discretionary share buy-backs on its behalf during the close period - and with annual results due to be released on Friday, 9 September, I feel there is scope for Crystal Amber's share price to rise closer to 180p in the coming weeks.

So, having included the shares as one of the constituents of my 2015 Bargain Shares portfolio at 149.25p ('How the 2015 Bargain share portfolio fared', 5 Feb 2016), and last rated the shares a buy at 148p ('Amber Alert', 4 Aug 2016), I maintain that advice. Trading on a bid-offer spread of 164p to 166p, I rate the shares a buy.