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Penny shares are sometimes a supply of heated debate amongst buyers. On one hand, they will ship astronomical good points if the timing’s proper. On the opposite, they’re notoriously dangerous, tormented by low liquidity, restricted monitor information, and loads of examples of corporations that burn out earlier than ever turning into worthwhile.
For an investor who will get it proper, the rewards will be substantial. But it surely’s hardly ever straightforward to identify the winners from the lengthy record of laggards.
What makes penny inventory investing notably difficult is the small window of alternative. Shares can stay forgotten for years after which immediately rocket on a brand new improvement, deal, or contract. Miss that second and the most effective returns may already be gone.
That brings me to one of many extra fascinating small-cap tales within the UK market proper now.
A hovering share value
Seascape Power Asia (LSE: SEA) is a Malaysian-based oil and fuel explorer that’s down round 20% since inception. However the previous yr’s been a really totally different story.
Shares have surged 334% in 12 months and are actually altering fingers for 80p. If momentum continues, this little operator could not qualify as a penny inventory for for much longer.
So what drove this value rally – and is there extra to come back?
A promising contract win
A key cause for the dramatic rally was June’s announcement that Seascape had been awarded a 100% taking part curiosity and operatorship within the Temaris Cluster in Malaysia. The block’s estimated to carry round 114m barrels of oil equal (mmboe) and already consists of two fuel discoveries in shallow water.
The corporate’s concentrating on a low-cost improvement technique, making use of a usually unmanned platform with minimal processing. That method may assist manufacturing of as much as 100m normal cubic toes per day (mmscfd) of fuel. The acreage spans 1,200 km2, giving loads of scope for additional exploration.
It additionally holds a 28% curiosity within the DEWA cluster and 10% within the Kertang prospect, each positioned off the coast of Sarawak. So it’s not in need of alternatives to construct a sizeable manufacturing portfolio.
Financially secure however unprofitable
I’m no oil and fuel engineer, however the above sounds promising and, financially, the agency seems disciplined. It’s debt-light and holds round £3m in money and equivalents, raised by latest placings and subscriptions. For an organization of its dimension, that gives a helpful buffer.
That stated, it’s nonetheless a really small £50m operation with no present revenues. Meaning any delays, failed wells or price overruns may put strain on money reserves. Buyers ought to all the time weigh up the dangers of backing companies that haven’t but confirmed industrial output – particularly in speculative industries like oil and fuel, the place success charges will be unpredictable.
So what’s the decision?
Penny shares will all the time carry higher-than-average threat, however they will additionally present a route into corporations with important development potential. For buyers eager on rising alternatives, Seascape seems like a inventory value trying out.
The Temaris Cluster is a formidable addition, and analysts monitoring the enterprise stay optimistic, with a mean 12-month value goal of 110p — a 38% premium to present ranges.
After all, buyers ought to weigh up the dangers rigorously. Exploration companies with out revenues can rapidly run into monetary bother. However so far as penny shares go, Seascape seems like one value preserving on the radar.
