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Continued from here. Right, here’s the next batch of TGISVP stocks!

Company:   Ryanair Holdings

Prior Post:   Here

Ticker:   RYA:ID

Price:   EUR 5.689

Last year, I was still mildly bullish on Ryanair, but also in the process of selling down an RYA position I held. Since then, the share’s out-performed my target price by just over 20%… But I don’t feel much regret: a) while RYA’s more defensive than most, airline stocks are inherently volatile – I demanded, quite rightly, a wide margin of safety to compensate, b) a year’s passed, I’m sure my current target will be that much higher, and c) I was generally pretty happy with the re-investment of any proceeds last year!

There’s little new to observe here – Ryanair remains a bloody awesome earnings machine! Current operating margin has been squeezed slightly by fuel costs, but at 14.2% it still deserves a 1.33 Price/Sales ratio. A positive debt adjustment is also appropriate, considering RYA’s currently sporting 10 times interest coverage & has a history of share buybacks & a special dividend in the past year. YTD earnings growth is at +12.5%, while last FY earnings growth was running at 25%+. Considering the potential for earnings volatility here, a 15 P/E is still pretty much the maximum I’m comfortable with (based on an estimated EUR 0.3875 EPS run-rate).

It’s been a long slow burn, but I suspect we’ll also finally see some kind of resolution re Ryanair’s long-standing stake & bid for Aer Lingus Group (AERL:ID) within, say, the next 15 months. I’m not suggesting Ryanair will necessarily be successful in its bid – in fact, I suspect the Irish government’s desperately casting ’round for any kind of white knight solution. This has nothing to do with consumer protection – I just don’t think any Irish politician, of any party, can stomach Michael O’Leary‘s obviously low opinion of them all…

Yes, things do get that bloody petty in government! But it does suggest some kind of realization for Ryanair’s 29.8% Aer Lingus stake – so let’s add that into our valuation. All in all, RYA now looks pretty fairly valued.

Price Target:   EUR 5.39

Upside:   (5)%


Company:   US Oil & Gas

Prior Post:   Here

Ticker:   USOP:G4

Price:   GBP 103p

So, finally – we revisit this little dust bunny… I’ve lost track of the people who’ve asked for a follow-up to my Sep-12 USOP writeup. But honestly, why bother? Since then, there’s been a glaring absence of tangible facts/figures/quotes from the company – certainly nothing to warrant any substantive change to my last post. Fer chrissake, their last set of accounts was only six pages long, and is now 10 months out of date..?!

Somehow, they’ve managed to continue drilling the same fucking Nevada hole for nine bloody months now! It’s like a Vegas porn movie gone horribly & repetitively wrong – even some of the USOP shut-ins must be getting bored with this kind of action… And there’s pretty much sweet FA to show for it. In fact, let’s not allow the goalposts to move here – there’s still no CPR release from US Oil, so shareholders have been operating all along in a pretty ridiculous information vacuum.

About the only result USOP’s managed in the past few months is a court order against some message board rampers derampers (sorry, I get confused sometimes!). This pointless waste of time & money may have actually struck a fatal blow – it proved the final straw for the usual message/bulletin boards, already sick of USOP shareholders’ hysteria. They’ve since pulled the plug, and hard-core shareholders/rampers have been forced to retire into the shadows of private/newly set-up boards. This, of course, cuts off a vital source of oxygen/publicity for USOP – all in all, a pretty unfortunate own goal which investors bizarrely cheered on at the time.

Of course, I could have written a follow-up just for fun – but honestly, making fun of idiots is…well, not that much fun. I’m rather puzzled & saddened by the whole affair really – a share price decline was always painfully inevitable, and it took only two months to collapse almost 80% from my GBP 620p writeup to my (rather kind) price target of GBP 130p. Despite that, not a single USOP shareholder admitted to selling – and judging by the glaring silence, I guess my post didn’t save a single shareholder’s bacon… OK, so who the fuck was selling..?!

At this point, why be so polite? Previously (in the absence of a CPR!), I v kindly used a $2.50 per boe valuation for USOP’s prospective resources (equivalent to a pretty normal $10 in-the-ground valuation for proved reserves, haircut by 75% to reflect prospective status) as the top end of my valuation range. Now, I’m inclined to simply fall back on the value of their cash, less estimated cash burn – frankly, nobody really has a clue how the company stands in this regard. However, I took a stab at guessing a $2.3 mio figure in my last post – which implies a current fair value for USOP of GBP 3.6p, and a virtual wipe-out from the current share price.

For the moment, the share’s hanging on to a quid – likely reflecting a lack of trading volume more than anything else. The poor bozos already neck-deep in USOP are so over-committed and/or indebted they can’t afford to buy more – and after the price collapse, they feel they can’t afford to sell either (a common fallacy). Lack of news, and the disappearance of the usual shareholder discussion venues, means there’s virtually no new investors joining this sinking ship. Barring a publicity spike or two (priming for a placing), I suspect a full 90-95% price decline is needed to really suck in a fresh batch of no-hopers for the next dead cat bounce. That’s down near GBP 30-60p odd – exactly where we saw the last wave of buying, after the Nov-12 price collapse. The USOP share price will inevitably grind lower

Price Target:   GBP 3.6p

Upside:   (97)%

Company:   Merrion Pharmaceuticals

Prior Post:   Here

Ticker:   MERR:ID

Price:   EUR 0.50

Merrion’s share price has nearly tripled in the past year! This year, who knows, it could double or triple again, or it may simply collapse – investors can pretty much place any kind of value they wish on a company like this…

Sure, we might see substantial future milestone payments from Novo Nordisk (NOVOB:DC) triggered here. Unfortunately, investors have nothing definitive on which to base their assumptions. I do know the failure rate is high as research & development proceeds step-by-step through Phase I and all the way ultimately to Phase III & FDA approval. And when your (GIPET) technology is participating indirectly in such a process, you’re clearly traveling down an even more difficult road.

Trying to handicap & discount that whole potential outcome may be a rather pointless exercise anyway – Merrion only has about 12-18 months of cash on hand, offset by a far larger amount of debt. And this debt’s now basically in the hands of a major shareholder, Irelandia (Declan Ryan)so one should be v aware the odds of the company ending up under Ryan’s control (before shareholders see a cent) are fairly high. Because of the lack of milestone clarity, limited cash funding, and the threat of creditor(s) seizing control, I still consider Merrion may end up proving to be worthless.

Price Target:   Zero

Upside:   (100)%

Company:   Clontarf Energy

Prior Post:   Here

Ticker:   CLON:LN

Price:   GBP 3.75p

Oh Lord, give me strength – it’s a John Teeling venture, again… One demonstrating the ridiculous hubris of many a junior resource stock. Clontarf’s only got GBP 0.1 mio of cash on hand, and yet it operates half way ’round the world in two v different locations: Africa & S America! Despite the recent flurry of Peru-related news – which will obviously & inevitably lead to a new placing – to date, the company’s got as much to show for itself as a nun in a brothel.

Quite obviously, CLON’s a worthless stock – if you own it, you really need to make an appointment with the wife & kids, and explain why…

Price Target:   Zero

Upside:   (100)%

Company:   Botswana Diamonds

Prior Post:   Here

Ticker:   BOD:LN

Price:   GBP 3.875p

Clearly, the Man Above likes a joke – throw a bloody dart, and I immediately hit another John Teeling company – can you believe it?! BOD’s intent on drilling exploration holes in Cameroon & Botswana – I suppose we can’t fault them, they’ve actually drilled some of those holes – and that’s about it…

OK well, I’ll admit they actually found three diamonds! If you happen to be in this bloody stock ’til the bitter end, maybe you win one of the stones as a consolation prize, eh? 😉 Or maybe BOD could quadruple its efforts, and just spend a diamond a month for their payment run…

Again, this is a worthless stock, and it will become increasingly desperate to complete a new placing.

Price Target:   Zero

Upside:   (100)%

Company:   Andor Technology

Prior Post:   Here

Ticker:   AND:LN

Price:   GBP 395p

Last year, I tagged Andor Technology as nearly 20% over-valued. Since then, this over-valuation’s been unwound on the back of a slow-down in revenues. While scientific imaging/microscopy is a wonderful high margin/niche business, it can be significantly impacted by delays/reductions in government funding. This has produced a 2% drop in EMEA sales, and a larger 11% decline in Americas sales. Delayed orders & a management re-shuffling suggest some execution issues also. Fortunately, a 32% surge in APAC revenues has bailed them out, with total revenues & adjusted operating profit both increasing by 2%. EPS jumped 14%, but this mostly reflects a lower tax charge.

I’d expect a continued emphasis on revenue growth here, so the current 16.7% operating margin may get squeezed as they seek out new markets & increased market share (to compensate for possibly reduced Western government spending). Fortunately, they have GBP 18.4 mio of cash on the balance sheet, and precious little debt, so they have the ability to buy some decent growth/revenues. [A further dip in the share price might also offer scope for some opportunistic share buybacks]. Considering the current size of the company/revenues, I expect Andor still presents an attractive long-term growth story.

A 1.67 Price/Sales ratio still looks appropriate, plus a positive debt adjustment to reflect their cash/debt capacity. However, I will scale back their P/E ratio to 14.0 – which I think is a decent compromise between the current negligible underlying earnings growth rate & their longer-term 20%+ EPS growth rate. Andor looks about fairly priced now.

Price Target:   GBP 375p

Upside:   (5)%

Company:   Escher Group Holdings

Prior Post:   Here

Ticker:   ESCH:LN

Price:   GBP 252.5p

Last year’s writeup is particularly useful to revisit when we consider Escher. Obviously selling to postal authorities isn’t exactly a growth opportunity… But Escher’s suite of products do help promote efficiency, cut costs & enhance revenue opportunities – something post offices desperately need. Given these ‘parameters’, the growth strategy actually makes a lot of sense – use stable/multi-year contracts in developed markets (they won a 15 year/$50 mio contract with the USPS early last year) to support a sales roll-out into higher growth Africa & Asia. Unfortunately, this strategy may also be their main issue…

First, the business came to market with too much debt – I don’t understand why potential investors didn’t protest this at the roadshow(s). Even with the IPO proceeds & a subsequent placing, the company still has $7.9 mio of debt outstanding. This isn’t appropriate, when operating profit & cashflow remains squeezed by an ongoing sales/contract bidding process & the implementation of contract wins. Looking at their IPO prospectus suggests Escher can earn 30%+ operating margins. This is somewhat irrelevant as i) margins were compressed to 16.6% in H1 2012, ii) software development’s actually capitalized – expense this, and operating margins would be drastically reduced, and iii) the company is actually consuming cash.

I don’t actually object to the capitalization approach – multi-year revenues can reasonably be expected from this product development – but when it’s accompanied by negative cashflows, it can present a misleading picture or a potentially dangerous financial situation. Sure, revenues will probably continue to grow quickly, but ongoing contract ramp-ups are likely to continue imposing a disproportionate impact on expenses & working capital/cashflow. This could lead to further dilution, and perhaps a share price shake-out if investors get spooked. These risks are difficult to capture in a fair valuation…

Last year I used a 3.0 Price/Sales ratio, as I expected a more exponential increase in revenues to compensate for the risks here. This year, I really can’t justify anything more than 1.5 Price/Sales, at least until I see a better funding/cashflow situation established. Escher looks v over-valued, and shareholders are risking a substantial decline in price.

Price Target:   GBP 89p

Upside:   (65)%


Company:   San Leon Energy

Prior Post:   Here

Ticker:   SLE:LN

Price:   GBP 7.8p

You gotta hand it to Oisin Fanning, he’s a bloody deal-maker. It’s obviously in the blood, and he’s got a few decades of deals under his belt now. All v well, but there was never anything on his resume, prior to San Leon, to suggest he could ultimately convert these deals into producing oil & gas properties. Well, ouch, except for his experience with Dana, as some readers may recall…

However, while shareholders wait ’round for something, anything, tangible to show up in terms of actual reserves, he continues to employ quite a novel way to raise cash: Acquiring companies & their cash balances, in exchange for SLE shares. His latest target, Aurelian Oil & Gas, increases the overall bet on Poland & brings with it a EUR 51.4 mio cash pile. This came just in the nick of time, as SLE was running on fumes – net cash was down to EUR 0.6 mio. [Of course, dilution remains unavoidable – share count has exploded from less than 800 mio shares two years ago, to almost 1.9 billion shares now].

However, they do have another EUR 9.9 mio coming in the door from the disposal of its royalty interest in the Amstel Field. There’s also the value of the 4.5% NPI in Barryroe, which they carry at a balance sheet value of EUR 39.2 mio. I suspect that may be a little excessive at this point in Barryroe’s development, or should I say appraisal. But I’m also assuming Aurelian’s current EUR 24.1 mio annual cash-burn is maintained – this should probably prove too conservative as Aurelian’s integrated into San Leon, so it all likely nets out. We’ll hopefully see some further proving up anyway of Barryroe in the near future.

Despite all this, the company’s resulting net cash may well be dissipated within 12-18 months – and in the absence of any tangible reserves, San Leon continues to look severely over-valued.

Price Target:   GBP 1.9p

Upside:   (75)%


2013 The Great Irish Share Valuation Project III     (xlsx file)

2013 The Great Irish Share Valuation Project III     (xls file)