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Bargain shares: An African adventure

Aim-traded African focused transitional energy group offers multiple share price catalysts that could potentially produce high returns for shareholders.
Bargain shares: An African adventure
  • Chariot signs a memorandum of understanding for a 10GW potential green hydrogen project in Mauritania, Project Nour.
  • Appraisal drilling at Anchois gas development, offshore Morocco, to commence in December.
  • Directors in discussions with partners to join the project and provide extended support and capital post-appraisal well.

Aim-traded African focused transitional energy group Chariot (CHAR: 6.5p) is poised to deliver positive news flow on multiple fronts, all of which have potential to be material share price catalysts.

Firstly, the group has just signed a memorandum of understanding for a 10GW potential green hydrogen project in Mauritania, Project Nour, which has exclusivity over a 14,400 km2 onshore and offshore area to carry out pre-feasibility and feasibility studies. The aim is to generate electricity from solar and wind resources for use in electrolysis to split water and produce green hydrogen and oxygen.

Chariot’s in-house team have a track-record of delivering large renewable projects in Africa and will commence work immediately on assessing the wind and solar resources, environmental impact as well as macroeconomic and social impact studies. Project Nour has potential to enable Mauritania to produce the cheapest green hydrogen in Africa and become one of the world's main producers and exporters of green hydrogen and its derivative products. The country is also close to potential large European markets. Chariot’s directors intend to carry out partnering process on the project with the objective to form a world-class consortium.

Secondly, the £41m market capitalisation company is turbo charging its Anchois gas development, offshore Morocco. It’s a huge resource with an estimated 361bn cubic feet (bcf) of 2C contingent recoverable resources, and 690bcf of 2U prospective resources. Appraisal drilling will start in December and last around 40 days to test the discovered sands, explore deeper targets and provide a site for future production.

The Anchois development plan consists of two initial subsea wells tied into a subsea manifold with an offshore flowline connected to an onshore gas processing facility. A short pipeline will then connect to the trunk pipeline to Europe, thus enabling access to the growing Moroccan energy market and the European gas market. The appraisal drilling couldn’t have been better timed with European gas markets in turmoil following Gazprom’s decision to reduce supplies to the Continent, thus highlighting the need to find an alternative and more reliable source of natural gas.

Importantly, Chariot has received two development funding expressions of interest from institutional lenders to finance the capital expenditure (US$350m for Anchois A and B sands) and bring the project on stream. The directors are also holding “very positive discussions with potential partners who could join the project to provide extended support and capital post-appraisal well.” Given the project will benefit from a 10-year corporation tax holiday once production commences, and a low 3.5 per cent royalty tax on gas produced offshore at the water depth of the Anchois discovery, then the project is becoming increasingly attractive for funders in the current price environment.

Importantly, Chariot’s balance sheet is well funded to cover the estimated US$20m (£14.5m) cost of the appraisal well. The group had net cash of US$18m at 30 June 2021 following a £13.1m placing, at 5.5p a share, and that excludes the US$5.2m commitment from Magna Capital LDA (of which Chariot chief executive Adnonis Pouroulis is a substantial shareholder).

House broker finnCap has a risked net present value of US$288m (29.7p a share) of which 75 per cent is attributable to Anchois. This equates to more than four times Chariot’s current share price and highlights the potential for large returns from the Moroccan project.

Simon Thompson's 2017 Bargain shares portfolio performance
Company nameTIDMOpening offer price on 03.02.17 (p)Bid price on 28.09.21 (p) or exit price (see notes)DividendsTotal return (%)
Kape Technologies (formerly Crossrider)KAPE47.94283.55800.9
BATM Advanced Communications (see note seven)BVC19.25910407.5
Avingtrans AVG20043011120.5
Chariot (see note one)CHAR8.296.450112.9
Cenkos Securities (see note two)CNKS88.4251069.530.6
Manchester & London Investment Trust (see note three)MNL291.653773.028.4
H&T HAT289.7529543.917.0
Management Consulting Group (see note five)MMC6.18360-3.0
Bowleven (see note four)BLVN28.95.515-6.1
Tiso Blackstar Group (see note six)TBG5520.40.54-61.8
Average    144.7
FTSE All-Share Total Return  64857994 23.3
FTSE AIM All-Share Total Return 9771456 49.0

1. Simon Thompson advised selling two-thirds of the Chariot holding at 17.5p on 3 April 2017 ('Bargain shares on a tear', 3 April 2017). Simon subsequently advised participating in the one-for-8 open offer at 13p a share ('On the earnings beat', 5 Mar 2018) and buying back the shares sold at 4p ('Chariot's North African adventure', 17 April 2019). Simon then advised taking up the one-for-six opern offer at 5.5p ('Exploiting margins of safety', 1 June 2021). Total return reflects these transactions.

2. Simon Thompson advised selling the Cenkos Securities holding at 106p on 3 April 2017 and the 106p price quoted in the above table is the exit price on the holding ('A profitable earnings beat', 3 Apr 2017). Please note that Simon has since included the shares in his 2020 Bargain Shares Portfolio and  rates the shares a buy.

3. Manchester and London Investment Trust paid total dividends of 3p a share on 2 May 2017. Simon Thompson then advised selling half of the holding at 366.25p on 26 June 2017 ('Top slicing and running profits', 26 June 2017), and selling the remaining half at 377p ('Bargain shares second chance', 17 August 2017). The 377p price quoted in the table is the final exit price.

4. Simon Thompson advised banking profits on half your holdings in Bowleven at 33.75p (‘Hitting pay dirt', 9 Apr 2018). The company subsequently paid out a special dividend of 15p a share on 8 February 2019 and the balance of the holding was sold at 5.5p ('Taking stock and profits', 9 December 2019).

5. Simon Thompson advised to sell Management Consulting's shares at 6p in February 2018 (‘How the 2017 Bargain share portfolio fared’, 2 February 2018). The price quoted in the table is the 6p exit price.

6. Tiso Blackstar transferred its UK listing to the Johanesburg Stock Exchange. The shares were then delisted on 23 November 2020 when shareholders received an exit cash payment of R415 per share on cancellation of their shares.

7. Simon Thompson advised banking profits on half your holdings in BATM shares at 49.9p ('Bargain Shares: Exploiting pricing anomalies and top-slicing', 3 December 2018) and subsequently bought back the shares at 43.5p ('BATM armed for a re-rating', 11 July 2019). 

Source: London Stock Exchange.

 

Chariot’s shares have risen 22 per cent since I last highlighted the investment case (‘Exploiting margins of safety’, 1 June 2021). The holding has also produced a 113 per cent total return if you have been following my recommendations to the letter since I first selected the shares in my 2017 Bargain Shares Portfolio. The holding has contributed to the portfolio’s 144 per cent total return, representing 95 percentage point outperformance of the FTSE Aim All-Share index.

It’s my strong opinion that positive news from Anchois, and progress from the group’s green energy projects, have potential to send the shares back towards last autumn’s 14.4p high, and perhaps well beyond. Buy.

■ Simon Thompson's latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. The books are being sold through no other source and are priced at £16.95 each plus postage and packaging of £3.25 [UK].

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They include case studies of Simon Thompson’s market beating Bargain Share Portfolio companies outlining the investment characteristics that made them successful investments. Simon also highlights many other investment approaches and stock screens he uses to identify small-cap companies with investment potential. Details of the content can be viewed on www.ypdbooks.com.