The investment managers of Aim-traded activist fund manager Crystal Amber (CRS:234p) are having a tremendous year, vindicating my decision to include the shares, at 207p, in my 2018 Bargain Shares portfolio.
By my reckoning closing net asset value (NAV) was 247p at the end of August, up almost 30 per cent from 190.6p at the start of 2018, with the top performing share being mobile payments platform Boku (BOKU:186p) which was up by 36 per cent last month. The news gets better because Crystal Amber’s largest holding, Hurricane Energy (HUR:56p), an oil explorer that has a huge resource base in a strategically important part of the North Sea, has announced a 50 per cent farm-in with Spirit Energy of its Lincoln and Warwick licences, covering the Greater Warwick Area (GWA). Spirit Energy is an independent exploration and production (E&P) operator formed by the combination of Centrica’s E&P business and Bayerngas Norge AS. News of the farm-in sent Hurricane’s share price surging 14 per cent, adding a further 8p a share to Crystal Amber’s spot NAV.
|Crystal Amber's net asset value|
|Ten largest shareholdings||Pence per share (31 August 2018||Pence per share (3 September 2018)||Percentage of investee equity held|
|Hurricane Energy plc||57.5p||65.4p||5.8%|
|FairFX Group plc||42.2p||42.6p||19.1%|
|STV Group plc||30.5p||30.5p||18.5%|
|De La Rue plc||23.4p||23.4p||4.7%|
|Woodford PCT plc||16.1p||16.1p||2.3%|
|GI Dynamics Inc||4.5p||4.5p||48.4%|
|Board Intelligence Ltd*||3.8p||3.8p||*|
|Total of ten largest shareholdings||223.8p||232.2p|
|Cash and accruals||-14.8p||-14.8p|
|Source: London Stock Exchange|
Hurricane and Spirit Energy are committing to a work programme targeting first oil by the fourth quarter of 2020 and a final investment decision (FID) on the first phase of a full field development by 2021. The plan is to unlock initial reserves of 500m barrels (gross). Hurricane will be fully carried through a $180m (£138m) first phase programme in 2019 to drill, log and test three exploration and appraisal wells that will accelerate appraisal of the Lincoln discovery and exploration of the Warwick prospect. Assuming all goes to plan, Spirit Energy will pay 75 per cent of the costs during phase two of the project, subject to a gross cap of $187m. Works will include a tie-in to the West of Shetland Pipeline system for gas export, thereby allowing for first oil from an early production system on the GWA in Q4 2020.
|2018 Bargain shares portfolio performance|
|Company name||TIDM||Opening offer price on 02.02.18 (p)||Latest bid price on 03.09.18 (p)||Dividends (p)||Total return (%)|
|U and I Group||UAI||205||227.5||15.5||18.5|
|Deutsche Bank FTSE All-Share tracker (XASX)||427.3||421.9||16.54||2.6|
|Source: London Stock Exchange share prices.|
The GWA farm-in provides a clear path to its phased development and brings forward by several years a potential full field development. Notwithstanding the significant cash flow that the Lancaster early production system will deliver, Hurricane would have been unable to undertake such a development on a standalone basis without impacting its ability to progress its Greater Lancaster Area (GLA) licences. The GWA farm-in provides Hurricane with funding for a large portion of the up-front capital expenditure and also frees up cash flows from the Lancaster early production system to fund appraisal and development of the rest of its portfolio. It looks a smart deal to me and to analysts at WH Ireland too. They are considering making material upgrades to their previous 61.8p target price.
It’s not the only company that is delivering in Crystal Amber’s portfolio either. I remain very positive on both investment and operational prospects for foreign currency payment services provider FairFX (FFX:141p). Crystal Amber’s holding in that company now accounts for 42p a share of my spot NAV estimate of 255p using prices on Monday, 3 September. Shares in FairFX have kicked on since my last update on Crystal Amber (‘Amber alert for more gains’, 10 Jul 2018), and justifiably so. If FairFx can maintain its heady progress – transactions processed for clients through its e-banking and foreign exchange services platforms surged by 22 per cent on a like-for-like basis in the first half – and lift turnover by half to £43.4m in 2019, then pre-tax profit could more than double to £16.2m. This implies the shares trade on a 2019 forward PE ratio of 15.5. My 200p target price for FairFx is very reasonable in light of its high growth potential.
So, with Crystal Amber’s NAV poised to make further gains this year, and the shares trading on an 8 per cent discount to book value, I feel that the share price momentum is likely to be maintained too. Buy.
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