The share price (now 5.75p) of this small explorer, developer and producer, with a focus on oil and gas prospects in and around Italy, Malta and France, has fallen over 90% in five years to leave a market capitalisation of £24m. It thus qualifies as a return reversal share on this filter. I have also examined it for Piotroski factors:
1. The last full year of accounts to 31 December 2012 show a profit from operations of €4.1m.
2. Net cash flow from operations was €6.5m
3. The change in ROCE year‐on‐year is positive because the previous year showed a loss
4. Cash flow was greater than profit
5. There is no debt
6. The current ratio has improved from the previous year’s level
7. An absence of large equity issues
8. Trading profit margin has improved
9. Sales to total asset ratio improved
Thus all nine Piotroski factors are positive based on the full year accounts.
However, there are dangers. Output from the main gas field already in production has declined in the past few months due to technical problems. This will probably result in a large decline in turnover (from €16.3m in 2012) and a fall in profitability to barely breakeven. Also there are profound geological risks combined with political risks with such a small company taking calculated but extreme punts on oil and gas bonanzas being found. On the positive side they have a very experienced managerial team and a diversified collection of prospects. They are also debt free.
Given that they fulfil the criteria laid out in the ‘Return Reversal’ academic paper and the ‘Financial Statement analysis’ academic paper, I have bought a few shares to add to the portfolio.