All systems go for West Newton and Union Jack Oil as Reabold gets £24 million placing done

Reabold resources logo

Reabold, RBD, has announced the successful completion of the Placing announced on 8 October 2019.

A total of 2,666,666,666 new Ordinary Shares have been conditionally placed with new and existing institutional investors by Stifel, at a price of 0.9 pence per new Ordinary Share, raising gross proceeds of £24 million.

The Placing Price represents an 12.2 per cent. discount to the mid-market closing price of 1.025 pence on the 8 October 2019, being the last practicable closing price prior to the announcement of the Placing.

Application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. It is currently expected that Admission will become effective and that dealings in the Placing Shares will commence on AIM, at 8.00 a.m. on 29 October 2019.

With funds now in place, the development of West Newton will be guaranteed. Surely UJO shares due a bounce on this excellent news for the WN consortium? 1.2p is too low with enough cash, £2.6 million to fund B well at West Newton. Placing will come, hopefully after CPR Q1 2020?

News flow West Newton

  1. A restart of EWT October/November 2019

  2. Completion of Extended Well Test End 2019

  3. CPR for West Newton Basin End 2019/Early 2020

  4. WN B well end Q1 2020/early Q2 2020

US third quarter earnings season kicks of October 15 2019 and it doesn't look pretty

The US third quarter 2019 earnings season kicks off on October 15 with companies like JPMorgan Chase and Johnson & Johnson.

Expectations continue to worsen as Brexit worries, Trump administration trade wars, slowing Chinese growth and a possible technical recession have hit confidence.

Consensus for revenues is stable with a 0.3% drop in the quarter, which would be the first since Q1 2018.. Companies listed on the STOXX 600 regional index are now expected to report a 3% drop in third-quarter earnings, worse than the 2.2% fall expected a week ago and compared with growth of 14.4% in the same quarter in 2018.

Commentators now believe it could be the largest quarterly fall since Q3 2016. As Goldman Sachs ’ David Kostin said “Margin compression is behind much of the decline, and sectors with high international exposure, like energy, technology, and materials will likely take the biggest hit.”

Whilst average EPS will fall, the median company is still expected to produce 3% earnings growth because big names in certain like Apple (AAPL), Pfizer (PFE) and Exxon Mobil (XOM).

The outlook for the fourth quarter and into 2020 will be interesting and I don’t believe it will be a pretty picture. After a bull run since 2010, earnings growth is running out of steam and there are many clouds on the horizon. Expect a continued rotation out of growth stocks into safer havens which can continue to raise prices and profits in a tough market.

The forward 12-month P/E ratio for the S&P 500 is 16.5. This P/E ratio is below the 5-year average (16.6) but above the 10-year average (14.8). Not a cheap market when earnings are stagnating.

Metro Bank update October 9th 2019 - bond price and launch of Business Insights tool

Metro bank bath

Metro Bank bond price

A continued recovery in the METRO BANK 18/28 FLR bond, see below. The increased risk of no deal on Brexit certainly didn’t help the share price yesterday with the Boris Johnson government and the EU seemingly unable to agree a way forward. With the Benn Act, prorogation of parliament starting for a new Queen’s Speech on October 14th, its hard to know what will happen next. The shares dropped 4.5 percent at 197p.

Metro bank 2018 bond
Share price metro October 8th

Business insights launch

Metro Bank launches new game-changing digital insights tool for businesses

Metro Bank has announced the launch of ‘Business Insights’ – its artificial intelligence-led, in-app account insights tool for business customers.

By generating smart tips and alerts for customers who opt-in to the service, Business Insights will enable businesses to make more data-driven decisions and help them manage their cash flow and forthcoming payment obligations better.

Insights include end-of-month cash flow analysis, notifications when latest payments to service providers are higher or lower than normal, and notifications about upcoming scheduled payments. Just the sort of helpful insights SMEs need to better manage their business. A full list of functionality is included in the Notes to Editors below.

The development comes as part of Metro Bank’s efforts to inject much-needed competition into the small business banking market following the £120 million funding it was awarded from the Capability & Innovation Fund. Following an initial beta launch, the service is now available to all Metro Bank business customers.

In partnership with AI fintech, Personetics, Metro Bank first launched Insights for personal customers, in October last year, generating growing levels of engagement and satisfaction from customers using the service. With more than 30 million Insights delivered to personal customers to date, over 85% of the Insights delivered have been rated by customers as highly helpful – earning four or five stars out of five. Insights has also contributed to greater overall satisfaction from the Metro Bank mobile app, which is now rated 4.8 out of 5 in the app store.

Paul Riseborough, Chief Commercial Officer at Metro Bank, says: “Life is busy at the best of times, especially if you’re running your own business. That’s why at Metro Bank we’re setting out to build a range of game-changing digital capabilities to help SMEs thrive.

“Business Insights marks the start of our journey to deliver the Capability & Innovation programme, and we’re well on our way to delivering more digital innovations to SMEs up and down the country. The tool uses AI-powered technology to make banking easier and help business owners save time managing their finances, so they can focus on running and growing their businesses.”

David Sosna, Personetics co-founder and CEO, says: “We are delighted to partner with Metro Bank on the launch of Business Insights. Small businesses need help managing their finances, a need that is only continuing to grow with the explosion of the gig economy. Banks such as Metro Bank that step up to the plate by delivering proactive and easy-to-access insight and advice will position themselves as the providers of choice for these small businesses.”

The tool launches with more than 25 business Insights for business customers. With built-in self-learning capabilities based on AI technology, the service will continue to improve as growing numbers of SMEs use these Insights.

Metro Bank supports tens of thousands of SMEs. It is rated no.2 by the Competition and Markets Authority for overall service by business current account customers. Business current accounts grew by 19% year-on-year to 30 June 2019 and 18% of business current account switchers in London and the South East in Q2 2019 chose Metro Bank.

Fed chief, Jay Powell, indicates return to quantitative easing and potential interest rate cut in US next month

jay powell fed

The US Federal Reserve, “The Fed”, chairman Jay Powell, said today that it will restart purchases of Government bonds to expand its balance sheet in order to prevent a repeat of the recent disruption in short-term lending markets, chairman Jay Powell said on Tuesday. A process called QE or quantitative easing which was last deployed heavily post the financial crash of 2009.

At the Fed’s September meeting, they stated there were considering resuming “organic” expansion of the balance sheet by purchasing assets at a regular pace to match growth in its liabilities.

He said QE 5 was directed at solving “recent technical issues” rather than materially affecting “the stance of monetary policy.” and was not anywhere of the scale used in the financial crisis.

n recent weeks, the New York Federal Reserve has deployed billions into short-term lending markets to prevent a repeat of the problems in September this year when borrowing cash overnight, The Repo Rate, via repurchase agreements rose by around 10 percent.

The repo rate back has since been brought back within a normal range of around 1.8 per cent. Powell said “While a range of factors may have contributed to these developments, it is clear that without a sufficient quantity of reserves in the banking system, even routine increases in funding pressure can lead to outsized movements in money market interest rates. This volatility can impede the effective implementation of monetary policy, and we are addressing it. Indeed, my colleagues and I will soon announce measures to add to the supply of reserves over time.. As we indicated in our March statement on balance sheet normalisation, at some point we will begin increasing our securities holdings to maintain an appropriate level of reserves. That time is now upon us.”

However, commentators have stated that organic expansion of the balance sheet may not add reserves fast enough to solve the issue. Some suggest that they buy between $200 billion to more than $300 billion of shorter-dated Treasury bills over the next six months.

Powell also confirmed expectations of a 25 basis-point cut at its next October meeting as inflation remains subdued at 1.8 per cent, and has been at or below the Fed’s target. With a “symmetric approach” he downplayed the risk of cutting inflation risk too much and damaging the economy .. “We will act as appropriate to support continued growth, a strong job market, and inflation moving back to our symmetric 2 per cent objective.”

Sirius Minerals update October 8 2019 - rises on hopes for project efficiencies but slips back

SXX share price october 8th 2019

Sirius Minerals (SXX) rose today to a high of 4.3p, compared with 3.82p last night as news of the company’s plans to conserve money and reduce cost/risk came to light. But late morning, the increase had been curtailed and the company closed down 0.3 per cent at 3.8p. Quite a swing for the day.

In today’s Times, SXX, CEO Chris Fraser, said that online shareholders were a disgrace and should be shut down. He said the FCA should investigate them, suggesting that private shareholders in the company had advised some to put their entire life savings into the shares. “They have these people sitting in their basements in their sweatpants, giving them investment advice - unregulated, unlicensed- and people follow them.” Fraser urged investors to “go and speak to professionals, otherwise, it is gambling”, going on to say "no one would tell a private investor to invest all your money from your pension and everything you have in a “high risk, but high reward potential venture” like Sirius.

This week Sirius announced the closure of the night shift at the Woodside Polyhalite mine to conserve cash, it has laid off 300 of its 1200 workers. The tunnelling at the mine has been going well, meaning that the company could well scrap plans for a third boring machine. SXX is looking at many plans to reduce project risk and bring forward production in order to generate cash earlier or use the existing waste convenor system. The strategic review is due at the end of October with detailed cost-cutting plans and potentially a new strategic investor in the project.

For now, I remain uninvested in SXX. Volatility great for trading opportunities though. The PR being generated by the company is rather impressive. From The Times to BBC…a lot of positive stories trying to generate interest in the company. For now though, funding remains the $64,000 question!

Reabold Resources gets placing going at around 10 percent discount to raise £24 million - news tomorrow

RBD share price october 8tjh 2019

West Newton in Yorkshire - About Rathlin, Reabold and Union Jack oil

Rathlin Energy drilled the initial well at West Newton in 2014, but struggled to get enough money to drill a second due to low energy prices. Reabold, was formed at the beginning of 2018, invested £3 million in Rathlin, giving it a 36 percent stake in the company and a 25 percent share of the gas project. Union Jack Oil, has a 16.7 percent interest in the project at West Newton.

On August 29th 2019, the partners in the West Newton project announced that they believed that it is a “significant oil and gas discovery”, and now deemed more significant than simply a “pure gas discovery” as was previously thought.

A CPR (Competent Persons Report) is being produced by the companies to provide details on the oil in place, gas in place and recoverable volumes. This is expected at the end of 2019 or early 2020. All being well this should raise the NPV10 calculations.

The Extended Well Test (EWT), running at the time, was paused to allow the test equipment to be reconfigured to design and implement a revised production test and validate the identified oil column.

Implications of placing

Investors will know tomorrow whether the £24 million placing has gone to plan. All seems positive and the discount to the prevailing share price is not outrageous showing decent investor demand for the story.

Once the £24 m is banked at the end of the month following the General meeting. RBD will buy a stake in Rathlin giving it a 75% ownership of the company and hence a very strong stake in the Yorkshire West Newton A and B project.

The EWT this year, CPR end of this year or early next and drilling of WN-B in late Q1 2020 will be critical to further the Net Asset Value of the project.

It has been a rough time for the UJO share price, despite a 17% share in West Newton, with Chris Williams @chrisoil selling down to below a 3% stake from 7%. They stand at 0.2p right now. But good news for UJO coming tomorrow when the placing conclusion is confirmed and all set for West Newton. Hopefully, Chrisoil will cease his selling, which has been at a big profit for him. More than doubling his money.

Its got to be good value for UJO at 0.2p given this news!

The Proposed Placing to Raise £24 million for Reabold Resources

At 4.45pm today, further to its announcement on 7 October 2019, Reabold Resources (RBD), announced a proposed Placing of 2,666,666,666 new ordinary shares ( at a price of 0.9 pence per Placing Share, raising £24 million, compared with the closing price today of 1.01p.

The Placing is being conducted through an accelerated Bookbuild which will be launched immediately following the 4.45ppm RNS and made available to eligible institutional investors.

The Bookbuild is expected to close no later than 8 a.m. on 9 October 2019, but Stifel and the Company reserve the right to close the Bookbuild earlier or later, without further notice. Stifel Nicolaus Europe Limited is acting as bookrunner for the Placing.

Previous RNS relating to RNS

On October 4th, RBD Reabold said: "The majority of the proceeds intended to be utilised to meaningfully increase Reabold's interest in Rathlin Energy UK Ltd, to fund and accelerate the permitted, two well work programme at the West Newton project, and to exercise its existing option in Danube Petroleum Ltd, providing the required funding for the IM-2 well."

On October 7th, Reabold Agreements confirmed that it was planning to increase its interest in Rathlin Energy (UK) Limitedto up to 74.99 per cent., through a £16 million cash investment and, potentially, a £7 million equity swap with existing Rathlin shareholders.

rathlin logo

Rathlin Subscription Agreement

 RBD has entered into a binding subscription agreement with Rathlin, conditional on completion of the Placing, to make a cash investment of £16 million in Rathlin, at a valuation of £2.75 per ordinary share in the capital of Rathlin.

 Proposed Equity Swap and Lock In Agreement

The Company has verbally agreed, with certain shareholders of Rathlin, to complete a swap of their Rathlin Shares for new Ordinary Shares at the Placing Price at the same value at which Reabold is subscribing for new Rathlin Shares pursuant to the Rathlin Subscription Agreement, up to a maximum value of £7 million. 

Discussions and terms are at an advanced stage and the Company is targeting finalising the Proposed Equity Swap ahead of a General Meeting to be held on October 28 2019, with the intention of concluding the Proposed Equity Swap, with admission of the Swap Shares to trading on AIM expected to occur concurrently with the admission of the Placing Shares, which is anticipated for the 29 October 2019.  

The Company requires that as a condition to completing the Proposed Equity Swap and under the terms of the offer, that the Swap Shares be subject to a three month lock-up period and a further three month orderly market agreement. Further announcements regarding the Proposed Equity Swap, including the level of uptake by Rathlin shareholders, will be made as and when appropriate.

Woodford Patient Capital Investment trust catches my attention as share price continues to fall

Woodford patient capital trust

Woodford Patient Capital Trust (WPCT) has had a torrid few months. It is a closed-end investment trust, unlike the Equity Income fund, this structure means that Neil Woodford and his team have not been forced to suspend it because of high redemption caused by poor performance.

woodford patient capital share price 2018-2019
WPCT  performance

About Woodford Patient Capital trust

Market cap £360 million, shares in issue 908 million

Listed April 2015

Fees 0.17% (HL)

From the Woodford web site: Hmmm. Looks dicey based on what we know now.

A compelling investment opportunity

  • Portfolio exposure to a mix of exciting, disruptive early-stage and early-growth companies and the scaled, commercial enterprises they become if successful

  • Buying stakes in businesses with outstanding intellectual property and helping them fulfil their growth potential through the deployment of long-term patient capital

  • Aiming to identify the best, untapped growth opportunities and deliver attractive long-term returns

  • An innovative fee structure, aligning manager and investor

The opportunity

  • Despite some of the best universities and finest intellectual property, the UK’s record of converting this into commercial success is poor

  • This is primarily due to a lack of appropriate capital investment – which creates a compelling investment opportunity

  • A long-term ‘patient capital’ approach can deliver extremely successful outcomes and help businesses fulfil their potential, while also helping to develop the UK’s ‘knowledge economy’ and support economic rebalancing

  • Untapped growth opportunities offer potential for attractive long-term returns

An investment team that shares a single goal

  • The fund is managed by Neil Woodford, who has more than a decade’s experience of deploying long-term patient capital to young businesses

  • Neil is supported by a dedicated team that shares his approach and absolute focus on client outcomes

  • Five experienced analysts work with Neil, providing him with valuable analysis and support on specific investment opportunities – each with a different skill set for depth of cross-market coverage

  • Understanding early-stage risks

  • Young businesses have a very different risk profile to more mature companies – risks are much more stock-specific, which implies a lower correlation with equity markets in general and the wider economy

  • This may offer diversification benefits

  • It also means long-term outcomes are more binary – extremely attractive rewards for success but also risk of capital loss (as some businesses will fail to fulfil their potential)

  • We aim to mitigate this risk through rigorous analysis of the opportunity, an unwavering focus on valuation and diversification across a larger number of smaller positions

Top 10 holdings

top ten holdings WPCT

NAV and share price

WPCT NAV Oct 2019

The shares of WPCT at 39.7p and trading at a discount to Net Asset Value (NAV - the sum of all the holdings the trust has) is 36.2 per cent as of October 4 2019. The shares have suffered hugely because of the troubles of Neil Woodford and Woodford asset management. A series of bets on risky, unlisted companies have unravelled the Woodford dream and cost investors dearly.

The issue with WPCT is the gearing of the company i.e. debt, which stands at 119%. The trust’s management is currently trying to renegotiate this debt facility before the deadline of January 2020. With a closed end investment trust, investors can buy and sell at will. The 60 percent decline in the share price over the last few weeks caused by sentiment, worries about this debt and also underlying portfolio performance (partly caused by redemptions and short selling of Woodford positions by speculators like Hedge funds) has made WPCT pop up on my interest screen.

I believe that WPCT will rebrand under a new fund manager in 2019 and if the debt can be sorted it looks like the discount to NAV could make things interesting. The worry is that Woodford fund management is finished and therefore when the Equity income fund reopens to redemptions in late 2019, it is likely that a further wave of sales will force Woodford to wind down his mutual funds. Because WPCT is an investment trust, separately listed on the LSE, this won’t happen. The directors of the company will rebrand and move the portfolio to a new manager.

The risk/reward looks good at less than 40p. I’m a buyer at these levels. The risk is no refinancing of debt and a huge sell off in any liquidation of other Woodford funds but 39p looks to have taken this into account.