Contrarian Investor Portfolio Review October 16th 2019

Greetings from Shanghai Contrarians! In order to aid transparency in what I write about, here is the first Contrarian Investor Portfolio. I will only cover my larger and more speculative or interesting holdings and put down a few of the stocks I am watching.

Please note I scale in and scale out of a position. Never sell at the top and hopefully never at bottom. Use Spread bets and CFDs., increasingly the former. Don’t use automated stops on small caps because of volatility and accidental stops being triggered on “shakes”. Tend to cut a position after a 20 percent loss.

UK Oil and Gas (UKOG) Average purchase price 1.2p Curret share price 1.10-1.20p

I have followed UKOG for many years and was a large investor during the Broadford Bridge drill in 2017. It was a profitable trade then, but didn’t manage to sell at the top at 7.4p. Broadford Bridge was a real cock up because of drilling issues.

I started buying UKOG again in the last few weeks before Surrey County Council Planning and the arrival of the drilling rig at HH. At around 1p, even with 6 billion shares in issue, it does look very good.

The news from Horse Hill yesterday on the coring samples from the HH-2 well was excellent..

“Preliminary visual analysis of a total of 241.45 ft of core has clearly identified the Portland reservoir's most productive zone or "sweet spot", which will now be the target of the planned circa 1,000 m HH-2z horizontal trajectory, expected to commence next week.

Live oil was observed "bleeding" profusely from core throughout the sweet-spot, the Upper Portland reservoir's most porous, permeable and oil productive interval. Lesser degrees of oil bleed, together with oil shows and oil staining were also observed from porous sandstone intervals lying above and below the sweet-spot. The core is now at a Surrey-based laboratory, where an extensive geological and petrophysical analysis programme is now underway. Results of analyses that directly impact the field's possible increased oil in place and recoverable oil volumes will be reported in due course.”

UKOG looks very undervalued at 1.2p. See https://contrarianinvestor.net/posts/2019/9/26what-is-ukog-worth-part-2

The drilling is HH is going very well. No cementing issues or acid wash problems like at Broadford Bridge. The geology of HH is different and lessons have been learnt. The excitement begins now as the HH-2-z horizontal well is being drilled right now, with the newly identified “sweet spot” as the target. Horse Hill has planning for up to 16 tankers a day initially, is in a calm geo-political environment of Horley Surrey and the site is already producing 250 bopd from the kimmeriddge. Tankers are leaving on a regular basis to Horley.

UKOG is an exciting prospect and I am targeting 2-3p once the Yorkville Associates shares for the Tellurian aqcquisiton (to enable 86% of Horse Hill to be owned by UKOG), further good news should boost things nicely. Don’t forget the new horizontal well will be 1000 metres long and 1000-1500 bopd choked is more than possible, New wells will be drilled in Q1 2020 to allow 3500 bopd. Lessons have been learnt by Steve Sanderson and the team over the last few years and hopefully the perfect drill so far contunues into the end of 2019.

Union Jack Oil (UJO) Average purchase price 0.22p Current share price 0.20-0.21p

I managed to see David Bramhill, Exec. Chairman of Union Jack Oil last Friday and it was a very interesting chat. I have bought in recently and it was great to hear about the forthcoming plans for Wressle, West Newton and Biscathorpe over the coming months.

Link to David Bramhill meeting notes Meeting with Dave Bramhill (Exec Chairman of Union Jack Oil) October 11 2019- exciting times ahead

Just to reiterate, no short term plans for a placing but there will be medium term.

Timings Summary (CI estimates):

West Newton

Extended Well Test November 2019

CPR Jan/Feb 2020

WN B Spud March 2020 (could be earlier or later)

Wressle

Planing inquiry November 5th - November 9th 2019

Biscathorpe

New seismic assesmment October - November 2019

Metro Bank (MTRO) Average purchase price 210p Current share price 204p

Even with the Brexit banking bounce Metro Bank hasn’t benefitted, compare with Lloyds bank for example. At 204p, the bank looks very undervalued, even with all the bad news over the last few months. The bank won’t go bust after a succesful bond issue (albeit at 9.5% coupon) and it looks very cheap versus book value. It has come down from 3000p in 2018 and the last placing in May was at 500p. Vernon HIll has been forced to leave to get the MREL related bond issue away and there are rumours that he is trying to take MTRO private. Hedge funds are shorting but upside on any good news looks strong.

See full SWOT analysis on Metro Bank at https://contrarianinvestor.net/posts/2019/10/9/swot-analysis-for-metro-bank-good-punt-or-too-risky

It has been a challenging year for Metro Bank, with the lender facing intense speculation over the health of its balance sheet earlier this year due to a £900 million accounting error. However, concerns have been redcued after the bank successfully raised £375 million via a share placing in mid-May which was over subscribed. In September MTRO raised $350 million in a bond issue.

The bank is likely looking to put the first half of 2019 far behind it and instead focus on delivering costs efficiencies and continued growth in capital-light fee income.

The bank is also busily expanding its presence in the North of England in the hopes of empowering growth for SMEs in cities like Manchester, Liverpool and Birmingham. Metro Bank plans to open around 10 new branches in 2019.

Highly capitalised - after ¢350 million bonds fundraise in September and $375 million equity raise in May to meet MREL (Minimum Requirement for Own Funds and Eligible Liabilities) requirements, oversubscribed. See more on MREL, SRB, and BRRD in link: Is the Bank of England behind the Metro Bank Chaos?

  • Deposits of £13,7 billion, net outflows of £2 billion in H1 2019 caused by bad publicity (buy July has seen £700 million in net in-flows)

  • Year on year loan growth of £3 billion to £15 billion

  • Number one bank in UK for quality of service according to latest Competition and Market Authorities Survey. Watchdog BBC calls them the No.1 UK bank for customer service.

  • Customer account growth of 190,000 to over 1.8 million, though rate of growth down from 201,000 in H1 2018.

  • Net book value over £10 per share, compared with £2.10 share price

  • Full banking licence in the UK

  • Increasing number of UK branches

  • Good initiatives with Fin Tech companies to improve service and customer analytics.

The shares have lost more than 85% of their value since the beginning of January, with the Metro Bank’s share price closing at 204p on Tuesday’s session, down from the £17 levels it saw at the start of the year.

The management says 2019 is a ‘year of transition’, with the lender focused on upgrading its cost savings guidance to the upper end of its original range and rebalancing its lending mix.

Q3 earnings are key on October 23rd and watch this space for a replacement for Vernon hill.

Reabold Resoures (RBD) - Average Purchase Price 0.94p Current Shares price 0.9-0.95p

RBD succesdully rasied £24 million at 0.9p this week, only a 12.5 discount to the prevailing market price to develop the West Newton field (17% share for UJO). The fact that the company got away the placing succesfully in this difficult market for AIM oil and gas speaks volumes. Lots of news flow for West Newton, extended well test and Competent Persons report to confirm volumetrics and once flow test completed, reserves.

See https://contrarianinvestor.net/posts/2019/10/9/all-systems-go-for-west-newton-and-union-jack-oil-as-reabold-gets-24-million-placing-done?rq=reabold

Other recent trades

Woodford Patient capital investment trust - one week trade at loss (fortunate timing before yesterday’s bad news) https://contrarianinvestor.net/posts/2019/10/15/woodford-asset-mananagement-to-close-equity-income-fund

Short S&P 500 - closed, too much good earnings news and Brexit, china deal head wind. Will revisit as S&P hits all time highs of 3000.

British American Tobacco - short trade as shares fell to 2600-2700p range as most earnings in foreign currency and £ rising.

Watching

Hurricane Energy, Imperial, BAT, I3E, Petro Matad, VAST.

British Pound $GBP soars as Brexit deal looms October 15 2019

GBP EUR oct 11-15

It seems that Boris Johnson might pull off an acceptable deal with the EU as Michelle Barnier sets a midnight deadline for the finalisation of the “tunnel” discussions when the final agreed legal text is agreed. It seems that there may be a special meeting of the EU 27 on October 27 to agree the deal. That means that Super Saturday in Parliament may be called off and MPs would vote on the deal next week.

The pound is up over 1% against the euro, US dollar and Swiss Franc.

Its going to be quite a day tomorrow if the deal is agreed. MPs will just need to vote it through with a choice of a delay, repeal article 50 or the Boris/EU deal.. The wording of the legal text will be interesting as the ERG, DUP etc. will need to be happy. I’m sure they have been kept briefed as Boris has been seeing MP’s in groups today.

Currency traders seem to be optimistic anyway and don’t forget with the money involved the top traders will have worked out the odds of a deal/no deal. The odds of crashing out on October 31st seem very low.

UKOG update October 15 2019 - coring operations complete at Horsehill and Live Oil bleeding profusely through sweet spot

UKOG rig

UKOG has announced the successful completion of an extensive conventional coring programme in its 85.635% owned Horse Hill-2 (HH-2) Portland pilot well.

Things are looking very good with this latest news, yet the shares are only up 7% percent to 1.15p. The horizontal well should produce some stunning results of 1000-1500 bopd since it is now targeting the “sweet spot”.

Things are going perfectly at Horse Hill so far, unlike the 2017 drill at Broadford Bridge. 1.15p is a stupidly low price caused by poor sentiment and burnt fingers from 2017-2018, YA share sales for Tellurian buy out to give UKOG an 85% share in HH, oil and gas AIM out of favour, risk off investment scenario caused by Brexit etc. but fundamentals at HH justify more like 2-3p min. More patience! But the HH-2z well is now only a few weeks away from flowing. Exciting times at Horse Hill. No operational problems at all so far and the oil is still flowing at 250 bopd and being delivered to Fawley Refinery to help pay for the drilling rig (around $25,000 a day cost).

The RNS

Preliminary visual analysis of a total of 241.45 ft of core has clearly identified the Portland reservoir's most productive zone or "sweet spot", which will now be the target of the planned circa 1,000 m HH-2z horizontal trajectory, expected to commence next week.

Live oil was observed "bleeding" profusely from core throughout the sweet-spot, the Upper Portland reservoir's most porous, permeable and oil productive interval. Lesser degrees of oil bleed, together with oil shows and oil staining were also observed from porous sandstone intervals lying above and below the sweet-spot.

The core is now at a Surrey-based laboratory, where an extensive geological and petrophysical analysis programme is now underway. Results of analyses that directly impact the field's possible increased oil in place and recoverable oil volumes will be reported in due course.

Having also reached its planned depth of around 2320 ft below rig floor, the well is now being prepared for electric logging, following which it will be plugged back to the "kick-off" point delineating the start of the HH-2z horizontal section. To ensure the borehole remains wholly within the sweet spot, HH-2z will be actively "geo-steered" during drilling to keep within a series of core and electric log-derived diagnostic geological markers delineating the zone's upper and lower boundaries. The successful delivery of such an optimally placed horizontal trajectory is designed to optimise flow rates and oil recoveries from the Portland reservoir.

About HH-2/2z:

HH-2/2z, the first of two new horizontal wells in the field's Portland oil pool, is designed to be retained as a future production well, capable of delivering flow rates significantly higher than the previously reported 362 barrels of oil per day from the HH-1 vertical Portland discovery well. Following a planned extensive HH-2z production flow-testing campaign, both HH-2z Portland and the HH-1 Kimmeridge well are expected to be put into long term production by the end of 2019.

Stephen Sanderson, UKOG's Chief Executive, commented: "The HH-2 coring programme has delivered its key short-term goal of defining the Portland reservoir's sweet-spot, the most porous and permeable vertical zone within the oil pool. We can now confidently proceed ahead to drill the HH-2 horizontal trajectory wholly within the most oil productive part of the Portland, the zone capable of delivering the significant flow rates we seek."

Woodford Asset Management makes shock decision to close flagship Equity Income Fund

Woodford patient capital trust OCtober 15th 2019

Neil Woodford's investment company, Woodford Asset Management, is lying in tatters today after its authorised corporate director Link Fund Solutions (LFS) announced that the suspended Woodford Equity Income Fund is to be wound up. The remainder of the funds will be returned to investors.

The Woodford Patient Capital Trust (WPCT), an investment trust which is still actively trading, was down another 8 percent to 34p as worries grow that it will follow suit and wind itself down at fire sale prices.

The WPCT was something that I dipped my toe into last week at 38.7p, but decided to sell on Friday after it fell to 36p. Fortunate given today’s price action.

Woodford,suspended his flagship £4.3 billion ($5.4 billion) fund from trading in June 2019, after an increase in client redemptions made it impossible for him to keep the fund open to investor sales.

The funds large holdings in unlisted or illiquid assets have become the Achilles heel of Woodford’s strategy, meaning it was doomed as its underperformance versus its benchmarks made investors want to dump it in droves and at a speed that Woodford could not cope with.

Despite seeking to sell down his illiquid holdings and move into liquid stocks ahead of a planned December reopening of the fund, Link said the process was not going as planned., "Whilst progress has been made in relation to repositioning the Fund’s assets, this has unfortunately not been sufficient to allow reasonable certainty as to when the repositioning would be fully achieved and the Fund could be re-opened. LFS has concluded that an orderly realisation of the Fund’s assets allows the return of money through interim payments to investors more quickly than if the Fund had remained suspended for a longer period of time.. As a result of the decision, Neil Woodford will cease to be the investment manager of the fund with immediate effect and the fund's assets will be split into two portfolios managed by others.”.

BlackRock Advisers will take control of the fund's listed assets whilst PJT Partners will continue selling the fund's highly illiquid assets.

The winding up of the Equity Income fund will begin on January 17, 2020.

Woodford was defiant saying the decision by LFS was not in the interests of shareholders, but the news essentially ends his career in infamous circumstances , after spending over 30 years building his reputation at Perpetual, managing the income fund there.

What a disaster for investors in Woodford funds. What on earth was he thinking with his choice of investments. Illiquid, risky and then he repositions his fund into shares like IAG and BAT which have been battered since he bought them! Hopefully the FCA will take some serious action after the dust settles as investors have lost bags of money in so called low-medium risk investments.. The days of illiquid investments in closed funds is at an end. High fees and disastrous returns, as I’ve said many times before, its often better to have your money in a low cost passive ETF like Vanguard.

What's happening with AIM oil and gas - pretty bombed out

AIM oil and gas october 2018 to October 2019

Both AIM (Alternative Investment Market) and the Oil/Gas stocks within it have been pretty dire over the last few months. Double digit declines and investor’s shouldn’t forget that 50% of a shares value is related to what sector it is in (approx). With Brexit and China trade fears, risk is off the table. Hence AIM is sold off as well as smaller FTSE 350 in economically sensitive areas e.g. financials, oil.

I have investments in UKOG, Union Jack Oil (UJO) and Reabold Resources (RBD) in oil and gas AIM at the moment which I bought in the last few weeks on hopes of a rebound in sentiment if Brexit deal sorted etc.

Contrarian Investor generally looks at valuation and critically news flow. All three of my Oil and gas minnows have plenty of news flow.

  • UKOG - Horse Hill drilling of HH-2 well during October. All on track so far.

  • UJO - Updates on West Newton, Wressle planning (Nov 5) and Biscathorpe. No placing imminent.

  • RBD- Update on West Newton, specially Extended well test and CPR. Exciting prospects after placing.

ukog share price 2014-2019

Others on my watch list include Hurricane Energy (HUR), I3 Energy (I3E), Petro Matad (MATD) and Rockhopper (RKH). Watching but not pounced yet, HUR and I3E in particular look oversold, but dependent on well results. Rockhopper could be a good one if Sea Lion ever gets off the ground and progress in financing seems to be being made.

Many bargains out there in this bombed out sector but if a Brexit deal is done, “riskier” assets might be back on the table. So many have lost so much money on AIM that I don’t blame fear e.g. UKOG down from 10-11p (intraday following Broadford Bridge well news) in 2017 to 1.15p now (partly due to botched Broadbridge Bridge cement job), UJO halved from 0.38 to 0.2p now due to @chrisoil share sales (he’s gone into RBD) as well as sentiment, RBD, a 1.75p 52 week high, now 0.92p.

Bombed out, but there looks like some good stories out there. I’m being very contrarian and brave and buying now as I think Brexit will be sorted before October 31 (hopefully with a deal), and AIM oil and gas may be back on the table soon. News flow from UKOG’s Horse Hill and UJO/RBD West Newton will be great to see and I think it will be positive.

Always looking for investing ideas, please contact me at contact@contrarianinvestor.net


What now for GBP and UK equities -Will a Canada Minus Boris Brexit deal be done - Currency traders believe it will

Eur /gbp October 13 2019

The Euro/GBP is back to where it was before Boris Johnson took over as Prime Minister, from Teresa May, in July 2019. After 3 years of hell after the Brexit referendum where Teresa May was the custodian of the negotiations with Brussels, a lady woefully unprepared in leadership skills for such a difficult task. Three times she came to Parliament with her deal, featuring the Irish Backstop, and three times she failed. Her own backbenchers and ministers rebelled against her plans with a series of high profile ministerial resignations e.g. Andrea Leadsom and so on.

Three or four months on from the summer shambles in Parliament with seemingly no way to go, it looks like there is indeed light at the end of the tunnel. After the Benn Act in Parliament made it extremely difficult for Johnson to go ahead with a no-deal Brexit on October 31st.

A constructive meeting with the Irish Taoiseach, Leo Varadkar, seemed to change the tone with a new “pathway to an agreement”. Varadkar has been a kingpin in the EU stance. It appears the DUP (Democratic Unionist Party), have shifted their red lines to allow some sort of compromise and EU and UK negotiators are now sweating the details over the weekend. Things looked dire after a difficult phone conversation between Merkel and Johnson early last week and the pound moved down to historical lows, but Merkel, as well as the UK, needs a Brexit deal, given that the German economy is on the verge of a technical recession. No one in the EU, in fact, needs a hard crash out by the UK on October 31st, despite what Nigel Farage says that “it’ll be fine”. I believe it would be fine in the end but November and December would be horrible and probably longer.

The treatment of rebel Tory MP’s like Ken Clarke has been appalling, but it seems that Dominic Cummings and Johnson have had a plan all along to drive their deal through Parliament, “do or die”.

Who is Leo Varadkar ?

The modern position of Taoiseach was established by the 1937 Constitution of Ireland and is the most powerful role in Irish politics. The office replaced the position of President of the Executive Council of the 1922–1937 Irish Free State.

Leo Eric Varadkar (born 18 January 1979) is an Irish Fine Gael politician who has served as Taoiseach, Minister for Defence and Leader of Fine Gael since June 2017. He has also been a Teachta Dála (TD) for the Dublin West constituency since 2007. He was born in Dublin and studied medicine at Trinity College Dublin. He spent several years as a non-consultant hospital doctor, eventually qualifying as a general practitioner in 2010. In 2004, he joined Fine Gael and became a member of Fingal County Council and later served as Deputy Mayor. He was elected to Dáil Éireann for the first time in 2007. He later served in the Kenny Government, as Minister for Social Protection from 2016 to 2017, Minister for Health from 2014 to 2016 and Minister for Transport, Tourism and Sport from 2011 to 2014.

In May 2017, Kenny announced that he would resign as Taoiseach and Fine Gael Leader. Varadkar stood in the leadership election to replace him; although more party members voted for his opponent, Simon Coveney, he won by a significant enough margin among members of the Oireachtas, and was elected leader on 2 June. 12 days later, he was appointed Taoiseach, and at 38 years old became the youngest person to hold the office. During the 2015 same-sex marriage referendum, he came out as gay, becoming the first Irish Minister to do so. He is Ireland's first, and the world's fourth, openly gay head of government in modern times and he is also the first Taoiseach of Indian heritage.

What next for Brexit, the GBP and stock market?

The Euro has been falling heavily against the pound and expectations that this pattern will continue

@The Sunday Times October 13 2019

@The Sunday Times October 13 2019

It was quite a move by some of the Brexit sensitive companies on the FTSE on Friday. Lloyds was up 12% to 59, as the banking sector is particularly prone to the fall out from a no-deal Brexit and crash out on October 31. I am long the bombed-out Metro Bank (MTRO) for this reason. Housebuilders also rebounded strongly. FTSE futures are marginally up at the moment but all depends on the negotiations moving from headline-grabbing hysteria to action.

@IG Oct 13 2019

@IG Oct 13 2019

Given Currency and bond traders often know the score better than most, and the fact that sterling has moved out of a bearish range and brokers like Deutsche are saying things like,” the latest Brexit developments are a potentially pivotal moment. We cannot recall a tine during the process at which Irish gov raised expectations to this extent ....we are no linger negative in the £”.

David Frost, UK Brexit neogitator

David Frost, UK Brexit neogitator

Negotiators from the UK and EU are having what has been described as "intense technical discussions" in an attempt to agree on a new Brexit deal. About a dozen British officials, including the UK's EU adviser David Frost, are taking part in the talks at the EU Commission in Brussels. The first public announcement on the talks may come on Monday after the EU's 27 ambassadors have been updated on the progress so far.

On Friday, Donald Tusk said he had received "promising signals" from the Irish PM, before adding: "Of course there is no guarantee of success and time is practically up, but even the slightest chance must be used". Boris said it is not "a done deal. The best thing we can do now is let our negotiators get on with it."

Speaking on BBC Radio 4's Today programme, Culture Secretary Nicky Morgan reiterated that "lots of details" needed to be worked out between both parties but said the "mood music" on negotiations "seems positive".

@bbc

@bbc

It is going be a very exciting week next week for currency and equity traders in UK stocks. GBP/Eur, GBP/USD, GBP/CHF as well as retailers, banks, financials and other economically sensitive stocks will be highly volatile as negotiations go on. Johnson, it seems to have a “super Saturday” vote on October 19th, after the EU Council summit on October 17th this week. MP’s will be given a choice of a Johnson deal or another delay in the exit day. Very intersting…could this finally be the beginning of the end of the Brexit hell?? It would be great to move onto something else!

UKOG update October 11 2019 - HH-2 Coring operations. Share price does nothing despite good news on cores

ukog share price oct 11

UKOG this morning announced that it has commenced an extensive conventional coring programme in its 85.635% owned Horse Hill-2 Portland pilot well. Details below.

Surprise, surprise the share price is as dead as dodo. Down 2.3 at 1-1.1p. The shares are struggling against new YA associates and company incentive shares coming onto the market. Still, things are going really well at Horse Hill, with new positive news , “The additional 60 ft core #4 is in response to the receipt of a revised HH-1 petrophysical interpretation from Petroscale in Houston, Texas, which indicates that the field's oil water contact (OWC) may be significantly deeper than previously recognised. “

Very frustrating as UKOG now have production planning in the bag, rig on site drilling HH-2 this month, horizontal well next month (1000-1500 bopd) and yet the shares are stuck at 1p. Investors have been burnt by the Broadford Bridge fiasco in 2017, but this is getting silly.

RNS coring

The first 60 ft core, starting at a drilled depth of 2049 ft below rig floor, was successfully landed at surface this morning and is being prepared for onward shipment to a Surrey-based laboratory, where an extensive analysis programme will be undertaken.

Further to the Company's announcement of 8 October, the coring programme has been increased from three to a total of four 60 ft cores, covering the full 240 ft Upper Portland reservoir sequence. Operations to cut core #2 are in progress and the full programme is expected to be completed next week.

The additional 60 ft core #4 is in response to the receipt of a revised HH-1 petrophysical interpretation from Petroscale in Houston, Texas, which indicates that the field's oil water contact (OWC) may be significantly deeper than previously recognised. If correct, the deeper OWC would increase the field's oil in place and recoverable volumes, potentially significantly beyond those reported in the Company's July 2018 readmission document. Core #4 is purposefully designed to provide the necessary data to help confirm the possible deeper OWC.

Following the coring programme, designed primarily to acquire the key technical data necessary to correctly position the HH-2z horizontal section within the Portland's most oil-productive zone, the well will drill ahead to just over 2300 ft, be electric logged and then plugged back to the "kick-off" point, delineating the start of the horizontal section. Drilling of HH-2z's circa 1000m horizontal trajectory will follow directly afterwards.

HH-2/2z, the first of two new horizontal wells in the field's Portland oil pool, is designed to be retained as a future production well, capable of delivering flow rates significantly higher than the previously reported 362 barrels of oil per day from the HH-1 vertical Portland discovery well. Following a planned extensive HH-2z production flow-testing campaign, both HH-2z Portland and the HH-1 Kimmeridge well are expected to be put into long term production by the end of 2019.

Stephen Sanderson, UKOG's Chief Executive, commented: "The HH-2 coring programme, a key step towards delivering the correct placement of HH-2z's horizontal section within the field's most oil productive interval, now also has the welcome task of helping confirm a deeper oil water contact. If correct, the deeper contact will have a potentially significant positive impact upon oil in place and recoverable volumes, a welcome development."