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"Bombed Out" portfolio takes a chance on fallen giants AA, Acacia, Hikma, Interserve, Petra Diamonds and Petrofac

Bomb
At last! A bouncing bomb!

I was all set to abandon the “Bombed Out but Bouncing Back” portfolio and then along came its saviour: Dixons Carphone Plc (LON:DC).

The virtual portfolio, using a stock screening process that supposedly identifies recovery stocks, was heading for the skip, with almost half of the virtual capital we started with wiped out over a period of five months, until the stock filter threw up – I use the term advisedly – Dixons Carphone in mid-December.

For once, the timing was right, with the stock coming back into fashion, helped by some favourable broker comment and the return of former chief executive Andrew Harrison to run the troublesome Carphone Warehouse.

READ Dixons Carphone's Andrew Harrison returns to Carphone Warehouse to lead turnaround

All good things come to an end, however, and upon running the stock screen first thing in the New Year Dixons no longer came up on the list, which meant it had to be sold.

Still, banking a £651 (11.6%) profit does not happen very often in this portfolio, and it does bring funds up to £6,257, meaning the portfolio has enough to make up to six investments (as per the £1,000 minimum investment per stock).

As luck would have it – we’ll find out whether that is good luck or bad luck in a week or so’s time – we had six candidates, so let’s have a quick look at them.

AA plc (LON:AA.)

Once known as the Automobile Association, the roadside assistance and insurance services provider was floated on the London stock market back in June 2014 at 250p, after private equity had extracted its pound of flesh from the company.

The stock now trades at around 177p, which is actually a slight discount to its net asset value per share, while the yield based on dividend forecasts should be around 5.4% this year. 

It did have some good news in 2017, with membership numbers rising for the first time in nine years, but this was overshadowed by executive chairman Bob Mackenzie’s defenestration in August for gross misconduct.

Around 6.1% of the company’s stock is held by “shorters” – people who have borrowed shares from fund managers to sell it in the hope of being able to buy them back at a cheaper price later on – so there is a lot of scepticism about how long the rebound will last.

Having said that, the shares are up 6% over the last week and 16% over the last month, so let’s hope the shorters are close to capitulation.

With a market cap of more than a billion quid this is a much larger company than the sort the “Bombed Out” algorithm generates; in it goes.

Bought 590 shares @ an average price of 177.54p. Total cost (including dealing costs): £1,048.

Acacia Mining PLC (LON:ACA)

Another large company, with a market capitalisation of £830mln, the gold producer has perked up of late after selling its 2% net smelter royalty in the Hounde gold mine in West Africa to shore up its balance sheet after suffering cash outflows from an export ban in Tanzania.

Ah yes, the export ban.

There is a deal on the table that could end the dispute with the Tanzanian government.

Under a proposed deal to lift the export ban, Acacia would form a new joint venture with the Tanzanian government to operate its three mines in the country, including Bulyanhulu and Buzwagi and North Mara. 

The government would take a 16% free carry stake in the mines along with a 50% share in revenues. Acacia would also make a one-off payment of US$300m as a gesture of goodwill.

The last I heard, Acacia, previously known as African Barrick, still needed to approve the proposal that was agreed in principle between its Canadian parent company, Barrick Gold, and the government in October.

Not one for widows and orphans, this, but it is indisputably bouncing back at the moment, so in it goes.

Bought 510 shares @ an average price of 203.2p. Total cost (including dealing costs): £1,043.

Hikma Pharmaceuticals PLC (LON:HIK)

The generic drugs maker issued a profit warning in May after slashing its full year revenue guidance due to delays on the approval of its generic version of asthma drug, Advair.

By August, Jefferies had called the bottom on Hikma shares, raising its target price to 1,390p. Around the same time Morgan Stanley and Peel Hunt cut their price targets; MS to 1,350p and PH to 1,390p.

With the shares trading at around 1,100p, I'd settle for any price beginning with 1-3 … but it looks to me as if the rally is already running out of steam.

Bought 90 shares @ an average price of 1146.2p. Total cost (including dealing costs): £1,032.

Interserve PLC (LON:IRV)

For a long time, Interserve was one of those stocks with a stratospheric dividend yield that clearly signalled a dividend cut was on its way.

Management seemed to be in denial for a while, but ultimately bit the bullet and suspended the dividend in February of last year, which did not stop the group having to warn in October that it was in danger of breaching its banking covenants.

The support services and construction group slashed its estimates for second half operating profits, which resulted in the shares crashing from 90p to 65.5p; they have now recovered to 105p and the hope must be that all the bad news is out there, though it does still have several millstones in the form of unprofitable energy-to-waste contracts.

Based on forecast earnings for next year it is trading on just 2.6 times projected earnings per share, but it's more about the debt with this one and those banking covenants than the earnings.

When the screen came up with this stock the best I could think of was: at least it is not Carillion.

Bought 1,065 shares @ an average price of 97.91p. Total cost (including dealing costs): £1,043.

Petra Diamonds Limited (LON:PDL)

All of the stocks we have looked at this week have been of a decent size, which makes a change from the bevy of tiddlers we normally end up buying.

Petra, at £436mln, is one of the lower capitalised stocks in this week's bunch, and our second Tanzanian miner.

In September the company revealed a parcel of 71,654.45 carats of diamonds from the Williamson mine in Tanzania has been blocked from being exported to Petra’s marketing office in Antwerp.

Key personnel from Williamson, which is 75% owned by Petra and 25% owned by the Tanzania government, were being questioned by authorities.

The following month t warned it was in danger of breaching its banking covenants, but later that month it said the new financial year had got off to a good start - aside from the not inconsequential matter of its dispute with the Tanzanian government.

Its current price is on a par with its net asset value per share, so if the company can kiss and make-up with the government there is plenty of scope for a strong rally.

Bought 1,275 shares @ an average price of 81.8p. Total cost (including dealing costs): £1,043.

Petrofac Limited (LON:PFC)

Petrofac is another fallen giant. The shares have fallen 43% over the last year but are up 18% over the last month and 5% over the last week.

The oilfield support services giant is under a cloud, with Ayman Asfari, its chief executive officer, and Marwan Chedid, its chief operating officer, had been questioned by the Serious Fraud Office (SFO) in connection with an ongoing investigation into the company and its relations with Monaco-based Unaoil.

The SFO launched a criminal investigation into oil and gas services firm Unaoil, its officers, employees and agents, in 2016 in connection with suspected bribery, corruption and money laundering in the global oil industry.

Petrofac said in May 12 it had engaged Unaoil for the provision of consultancy services in Kazakhstan between 2002 and 2009.

A June trading update reassured investors a bit, as did a December statement that showed order intake was still healthy despite the perception that the business was beleaguered.

The real turning point, however, seems to have been the migration of the Santuario production enhancement contract into a 36% interest in a production sharing contract relating to the Mexican asset.

Since that point, the shares have risen steadily.

Based on earnings forecasts, it is trading on just 9.3 projected earnings but like a lot of other companies in this list it is the gearing (debt-to-equity) that is a concern, as debt is currently more than twice the level of equity.

Bought 200 shares @ an average price of 519.5p. Total cost (including dealing costs): £1,039.

All of those trades were nominally done on Tuesday and a day later the rag-bag collection is just about in profit, which is a good sign, unless, of course, you were hoping for a spectacular Viking-style burial for the Bombed Out portfolio.

Here's where we currently stand​

 

Company

No. of shares

Total cost

Average price paid

Current bid price

Current value

Profit/ loss £

Profit/ loss %

AA

590

£1,048

177.54p

170.8p

£1,008

-£40

-3.8%

Acacia Mining

510

£1,043

204.54p

203.2p

£1,036

-£7

-1.5%

Hikma

90

£1,032

1146.17p

1105p

£995

-£37

-3.6%

Interserve

1,065

£1,043

97.91p

106.4p

£1,133

+£90

+8.7%

Petra Diamonds

1,275

£1,043

81.83p

83.25p

£1,061

+£18

+1.7%

Petrofac

200

£1,039

519.5p

514.4p

£1,029

-£10

-1.0%

 

  • Cash: £11
  • Total value of original £10k portfolio: £6,272
  • Profit/loss on closed trades and dividends: -£3,742
  • Unrealised profit/loss on current holdings: £15
  • Total profit/loss: -£3,727
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