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Oil producer Sefton Resources (LSE:SER) today announced its half year results which were – as is normally the case with this AIM listed penny share dreadful, pretty piss poor. A marginal increase in production and in the oil price meant that revenues for the six months to June 30th increased from $2.028 million to $2.283 million but since the cost of sales increased by more, the gross profit actually fell from $1.421 million to $1.338 million. What is the heck of pumping more oil if it cuts your profits?
After the predictably high central costs, earnings before non-cash charges fell from $484,000 to $365,000. Needless to say if one adds in non cash items there was the usual loss. What is equally horrifying is that this was achieved after capex of $2.758 million (up from $1.293 million). This company strikes me as one of those that keeps having to invest heavily in capex to keep production flowing which means that its ability to actually generate free cashflow is not that great. In the case of Sefton, historically “not that great” would overstate the case.
The company boasts that cash and cash equivalents increased from $919,000 to $2.527 million while total liabilities were reduced by $400,000 to $8.3 million. Yup but this is not exactly down to cash generation is it? It might just have something to do with raising £2 million (shall we call it $3.2 million?) in January. Work it out – this company actually bled an underlying $1.2 million in the first half.
The company promises that it has a number of plans to increase second half output. But these all require material capex. And so it states: “Looking ahead, with 100% ownership of all its assets, the Company is reviewing opportunities to bring in third party capital to help develop our projects while still retaining operating control. After the 31/12/12 audit (year-end) and the updated year-end engineering on both California and Kansas, the Company plans to utilise a combination of financing vehicles which is likely to involve a mix of debt, equity and joint ventures to develop its assets more fully “
Er… And so you bought shares at 2p back on August 9th when the company announced that broker Fox Davies ( which had recently picked up stacks of warrants in Sefton so was 100% unbiased) would publish a research note after the interims:
Recently Sefton’s lead broker Fox-Davies Capital completed a site visit to the Company’s operations in California and Kansas. Fox-Davies intends to initiate research coverage on Sefton in September once the interim results have been announced.
Tough luck – you should have followed my sell advice then (read it HERE). Since August you have had dismal results and now news that the company may take on debt and perhaps issue equity. I cannot wait for that Fox Davies note but with the shares now at 1.58p, unless you are a glutton for jam tomorrow, I guess you know what to do. I’d still not be in the slightest bit tempted to buy.
Just keep ranting on about this oil producer, its great I’m picking up cheap stock as your cronies who follow you are shorting. These will be back over 3p, look at the assets.
Tim has it spot on in this article.
“This company strikes me as one of those that keeps having to invest heavily in capex to keep production flowing which means that its ability to actually generate free cashflow is not that great. In the case of Sefton, historically “not that great” would overstate the case.”
Monty
Go ahead fill your boots. I’d rather look at the cash generation ( or lack of it) and liabilities but it is your call what you look at.
OnTarget
You are on target with your comment
Best wishes
Tom