Portfolio review of the week - 5th February 2011

The Dow Jones Industrials ended the week up 2.3% after a 30 point rise on Friday to 12,092 and the FTSE 100 closed the week at 5,997, a rise of 2% for the week.

A mixed non-farm payroll jobs report yesterday gave the markets confidence that the U.S. Federal Reserve would not move quickly to raise interest rate or curtail the quantitative easing programme where it creates money to buy government bonds and other financial assets, in order to increase the supply of money in the economy. Since early 2009 the U.S. government has spent or committed $2.3 trillion dollars to this programme. The theory is that by buying bonds and taking them off the market, the Federal Reserve pushes up their prices and push down their yields which mean lower interest rates for borrowers and encourages spending. In addition, it encourages investors into stocks and corporate bonds which offer higher returns than government bonds and hence it is generally good for investors. The downside of the programme is that it creates inflationary pressure in the economy since in effect the central bank is printing money. The Bank of England has also spent £200 billion on quantitative easing.

On the Contrarian Investor UK portfolio front its been a relatively stable week with just a couple of small additional purchases in Rockhopper Exploration (RKH).

Xcite Energy (XEL) - Xcite finished at £3.62, after a 6p rise on Friday but down 8p for the week. The revised rig deadline of February 11th is now the focus with the speculation behind the delays in signing with British American offshore for the Rowan Norway Jack-up rig intensifying. I agree with the view that it is strange that that the contract signing has been delayed for the second time when the cost and specification of Rowan Norway have been known for so long.  I am sure there is something underlying this further postponement - either waiting for early visibility of the CPR (Competent persons report) which will move oil resources to official reserves which is due for publication late February or early March, or a farm in deal or even takeover with a third party. It would be very surprising if the weeks of extra delays are just due to lawyers bickering about contractual terms. t is also interesting that Xcite called on the SEDA (Standby equity drawdown agreement) for an additional £5 million this week, is this drawdown needed for the rig? With February 11th not aware, all will become clearer this week.

Bowleven (BLVN) - Cameroon oil explorer Bowleven had a better day yesterday with a 2.3% rise to £3.57 giving a flat week. No news to report on this one but the Sapele 1 drill update cannot be far away.

Rockhopper (RKH) - A 5% rise on the week but no leaks at all from the progress of the 14/10-3 North Falklands basin well. It's a case of watch and wait.

Weatherly International (WTI), Sirius Minerals, (SXX) Angel Mining (ANGM) -Again nothing to report but I am surprised that an update on gold shipping has not been forthcoming from Angel given it was expected in January. A reasonable 4% rise on WTI as we await further news on the listing of CAR (China Africa Resources) on AIM which is due in April and which WTI shareholders will get an automatic holding.

Next step should be more interesting on the RNS front, potentially we have - Xcite Energy (rig news), Angel (gold shipment update), Bowleven (Sapele 1 update) and most importantly Rockhopper (14/10-3 well update). Hopefully more to write about next week!

Imagination Tech (IMG) - Unfortunately this fell through a stop loss and position closed.

Good start to 2011 in U.S. and Contrarian, not so bright for FTSE 100

Despite all the tension in the Middle East, the Dow Jones Industrial Average ended up 68 points, to 11,892 making it a 2.7% rise for the month, its best January since 1997. The FTSE 100 has not been so fortunate, with the index falling 0.6% in January to 5,881. The discrepancy in performance is largely explained by the larger presence of cyclical stocks such as industrial group Caterpillar (CAT) in the DOW. Also the fact that it is a price weighted index (i.e. the higher the price of a stock the greater its weighting within the index) whereas the FTSE 100 is a market cap weighted index is not widely recognised (and hence the U.S. S&P 500 is a better measure of U.S. stock market performance).

The Contrarian Investor UK portfolio suffered again today on the market sell off and unfortunately Imagination Technology (IMG) fell through a stop loss set 10% below buy price. The strong start to the year precipitated by some good gains in Xcite (when it went close to 400p) and Bowleven, have been marred by the Imagination loss (fortunately not a huge position) and a stupidly set stop loss on Sirius Minerals which caught me out and which was only set to control my required margin requirements (daft to do given the volatility of SXX).  But still up nicely for the Month so a good start to 2011 but it could have been a lot better. Now for Xcite and Bowleven to come in February!

Portfolio review of the week - 30th January 2011

Rioting in Egypt over the rule of President Hosni Mubarek sent shares down on Friday with the Dow Jones Industrial Average down 166 points, or 1.39%, to 11,823 (the biggest drop since November 16th 2010) The Dow fell 0.4% on the week, its first weekly drop in nine weeks. The FTSE 100 index dropped 1.4% to end at 5,88, a 0.25% drop on the week.

The issues in Egypt drove up oil by 5% to $89 (see previous post: http://contrarianinvestoruk.blogspot.com/2011/01/oil-surges-on-egypt-issues.html) and sentiment in the U.K. wasn't helped by news that a U.K. consumer confidence index dropped eight points in January to -29, the lowest figure since March 2009 and only the sixth time in 35 years it has dropped by so much. Despite the oil price surge, oil stocks were mainly in the red.

The fall in the markets was overdue since after 8 weeks of rises on the U.S. markets, a correction was to be expected and the Egyptian situation was the catalyst for a sell off and profit taking. Further volatility can be expected this week and at times like this opportunities for buying can be excellent as uncertainty and the bears take hold of sentiment. 2011 will be a volatile year in the markets.

There has only been once change in the portfolio this week with the addition of Namibian copper miner, Weatherly International (WTI) (see post - http://contrarianinvestoruk.blogspot.com/2011/01/weatherly-international-namibian-copper.html).

Xcite Energy (XEL):  It was good to see Xcite rising on Thursday and Friday after drifting for some many weeks following the oilbarrel.com presentation, finishing at £3.71. Given the market environment at the tail end of last week and general negative oil company sentiment it was reassuring to see a rise. There has been lots of rumours doing the rounds about Xcite this week, with FT Alphaville claiming that it was in takeover talks. The deadline for the rig signing is tomorrow and I am surprised they have left it to the wire. Director of Business Development, Charles Lucas-Clements said at the Oilbarrel conference that investors should not be worried and that the deal would be done but why wait until the 31st? Although I have dismissed the takeover rumours as just that, rumours, it does seem strange and as Lucas-Clements said at Oilbarrel, "don't sell you will see this share double or triple". Perhaps he was referring to February 2011 not a later date on a bid? I guess we'll find out soon enough! Hopefully an RNS tomorrow morning to explain what's happening. Even if a takeover is nonsense then news that they have got the Rowan Stavanger, instead of Rowan Norway, until Talisman Norway need it would be fabulous as production timings would be accelerated. If the Competent Person's report is due in February it would also be good to get an update on progress.

Bowleven (BLVN) - Wild oscillations in the share price this week with the price dropping to 330p on Thursday before rebounding to finish at 355p. News that JP Morgan had offloaded some of their stake and a feeling that this seller was out of the way took the pressure off. I am still surprised that the share price has dropped quite so much with so much good news from Cameroon but market sentiment is not as rosy as it was a few weeks ago.

Rockhopper (RKH) - Little change as the rumour mill starts on progress at the 14/10-3 exploration well. News likely later in the week. Frankly there's so much rubbish on the bulletin boards on RKH I can't even face ploughing through them!

Sirius Exploration (SXX) - A sharp sell off this week after the news from the North Dakota exploration drill (see post - http://contrarianinvestoruk.blogspot.com/2011/01/todays-sirius-minerals-action-is-par.html). The shares dropped 17% to 17.25p. I continue to hold for the reason's cited in the post above.

Imagination technology (IMG) - A 4% drop this week to 368p on no news. I continue to hold but may be one to cull this week as now close to 10% below my buy point.

Angel Mining (ANGM) - We still await the news of the dore shipment for the Nalunaq mine which was promised in January. Time running out? - news on Monday perhaps or another delay?

Bad week continues so its case of waiting for the turn

Late December and early January seemed to be days of endless gains on the portfolio. Bowleven (BLVN) and Xcite Energy (XEL) both showed strong moves up on positive news. Now things have come to a grinding halt and I'm seeing day after day of steady (and not so steady) declines. Every stock in the portfolio was negative again today (Sirius, Bowleven, Xcite, Sirius, Rockhopper) bar one (Imagination tech). Bowleven was looking particularly sick this morning with a 5% fall soon after the market open, but reason prevailed and it recovered to close down 3p, at 348p. Yesterday the fall in the oil stocks was precipitated by the falling oil price and there is certainly a sector rotation out of oil at the moment with prospects of rising inventories and OPEC threatening to increase production. Today, market sentiment just seemed to be against AIM and the small cap sector.

It's a case of just sitting it out when you have weeks like this. The stocks are solid, the research has been done, the news flow has been checked now buyers need to come back. Earnings out of the U.S. continue to be strong which should support the markets.

Still patiently waiting for the anticipated news flow from most of the stocks in the portfolio.

Rough day today on bad U.K. GDP news

Its been a big red day across the board for the portfolio for the second day. The main reason was the unexpected news that the U.K.’s GDP (Gross Domestic Product) shrank in the final quarter of 2010 by 0.5%, compared with growth expectations of at least 0.2%. This was caused by weak services and construction, though manufacturing continued to be strong.

So we have a heady cocktail of rising inflation (4.8% RPI) and weakening growth which makes life very interesting for the Bank Of England (BOE). If they increase interest rates above 0.5% they risk curtailing growth even more especially with the raft of austerity measures and tax increases (e.g. VAT recently increased to 20%). BOE Governor, Mervyn King, said tonight that families faced the biggest squeeze on household income for 90 years. The government blamed the bad weather in December for the fall in economic output. The news probably puts the brakes on interest rate increases for the foreseeable future which should be good news for the U.K. stock market in 2011, unless a double dip recession does rear it's ugly head ahead. This will happen if quarter one GDP falls (a recession is technically two quarters of economic contraction).

On a stock specific note, Sirius Minerals (SXX) continued its downward trajectory, falling below 16p during the morning but it has now stabilised at 16.5p (down 3.5%). It is unclear for the reason for the big fall this morning.It may have been shorters or just an excess of sellers. I’m sure market makers also had a role to play to “panic the weak”.

Bowleven (BLVN) is suffering with a 5% fall to 352p. As for the reason for this big drop, no idea! Perhaps it’s a leak from Cameroon that the extended drilling has come to nothing, but nothing to confirm either way. Looking at level 2, certainly a big seller in the background and not enough buyers to mop up the excess supply. Not a market maker tree shake since not a dramatic fall, a gradual tick down as selling pressure built through the day.

Imagination Tech (IMG) has like Bowleven had a bad day, but has now recovered to 11p down 3.2% despite a story on Apple insider (http://www.appleinsider.com/articles/11/01/24/production_of_apples_ipad_2_to_begin_in_february_iphone_5_in_may_report.html) that production for IPAD 2 will start in February for an April launch
with Iphone 5 due in June both with the persistant rumour that these devices both will have IMG chips.

At least Xcite (XEL) has held nicely firm despite the overall market weakness, currently down 0.5p to 363-367p.

Potentially exciting week of news on portfolio

Lots of potential news due any day on the Contrarian Investor portfolio. As a reminder:

1. Angel Mining (ANGM) - 1st gold pour and shipment from Greenland's Nanulaq mine

2. Xcite Energy (XEL) - Signing of agreement for Rowan Norway jack up rig

3. Rockhopper (RKH) - news from 14/10-3 well on its PL032 licence in the North Falkland Basin

4. Bowleven (BLVN) - update from Cameroon Sapele 1 well.

Plus early to mid-February

1. Xcite Energy (XEL)- upgrade of resources to reserves on Bentley (200 million Plus)

2. Sirius Minerals (SXX) - update from Queensland Australia seismics and Sino-Agri Chinese deal

3. Imagination Technology (IMG) - confirmation from Apple on IPAD2 and Iphone 5 spec

Portfolio review of the week - 22nd January 2011

A great deal of volatility in the market to contend with this week but this threw up some good top-up opportunities, particularly in Bowleven (BLVN) and Sirius Minerals (SXX).

Xcite Energy (XEL): After testing 350p early in the week on low volumes, Xcite had a positive move on Thursday and Friday to finish at 368p. There seems to be a very consistent retrace pattern with this company, with the share price dropping by small amounts for several days before stabilising and then starting a move up, presumably instigated by the market makers. Still looking forward to the rig contract signing news and which one by January 31st  - Rowan Norway or Rowan Stavanger. The company have signed a Letter of Intent on the Norway but given a cancellation of a contract with BP on the Stavanger which is already built (Norway would not be ready until October), this could offer great opportunities to start production far earlier in the Bentley field. All conjecture of course, but sounds like a credible alternative. Nice rumour anyway. (POST POST NOTE: See http://contrarianinvestoruk.blogspot.com/2011/01/xcite-rumour-dispelled-rowan-stavanger.html).  I'm looking forward to a very profitable few weeks on Xcite - the share price should be a lot higher than £3.68 on a field of at least 200 million barrels.

Sirius Minerals (SXX): A major announcement this week with the purchase of NE England potash company, York Potash for £25 million in shares and a management restructuring with Chris Fraser (York's founder) taking over as Sirius's new CEO and MD.

A JORC Exploration Target of between 3.3 and 6 Billion tonnes of 67% to 94% polyhalite and 330 to 400 million tonnes of 35%-40% potassium chloride has been established for the currently contracted area within the York Potash Project. This estimate establishes the project as having one of the world's largest deposits of polyhalite at mineable depth.

The shares have had a good run this week, rising 4p or 24% to 20.75p on the York Potash and director buys. I took the opportunity to buy more on the fall during Thursday, since significant news from the company's North Dakota exploration project is expected mid-February which will make 20p look like a bargain. It is amazing to think that Sirius was 3p or so in August 2010.

Bowleven (BLVN) - Finally a rise in Bowleven's shares on Friday with a 3% increase to 380p. All week the shares have been drifting down as investors wait for further updates from the Sapele 1 well in Cameroon. Early Friday, with the share price down again, I took the plunge and bought more shares. With estimates of oil in place already at 65 to 430 million barrels in the Deep Omicron, mean 217 million barrels this company has great prospects for the future.

Imagination technology (IMG) - I have initiated a position this week on the rumours that the Ipad 2 and Iphone 5 will use IMG chips. Unfortunately this is showing a loss currently but Goldman Sachs issued a broker note this week with a £6 target, currently the shares are £3.84.

Angel Mining (ANGM): A poor week for Angel with the share price drifting down to 5.75p. News of the first gold production from the company's Nanulaq mine is due this month (and hopefully it is positive) as well as an update on progress of preparing the Black Angel zinc/lead mine also in Greenland. "To minimise transport and refining costs, the Company will only ship doré once it has produced an optimal quantity. The first shipment of doré for refining is expected to take place in January 2011" RNS 15th December. Did a couple of buys and sells on this one, but still holding a position at 5.8p.

Overall a good week for the portfolio, with Sirius being the star. I reckon Xcite should be the big mover next week, followed perhaps by Angel on some Nanulaq mine news. The Contrarian Investor UK portfolio has had a nice start to 2011, with a profit edging towards £7000 already because of gains on Bowleven and Xcite earlier in January.

FTSE 100 gets a good pasting after China worries

The FTSE 100 fell 109 points today to close at 5,868 on fears that that the Chinese government will be forced to increase interest rates to dampen growth in an economy growing at over 10% in the last quarter of 2010. This meant bad news for commodity stocks on concerns on a fall off of Chinese demand.

Bay day for parts of the portfolio (Sirius, Bowleven, Imagination Tech) as technology and oil stocks were hit hard. On the positive side, Angel mining stayed flat after a weak start and largest holding Xcite finished the day up 7.5p (after rising as much as 16p) in the early afternoon.

Rising commodity prices are beginning to take their toll on some sectors. EasyJet (EZJ) dropped16%, the most in 6 1/2 years, after it said its first-half loss may double after increasing fuel costs due to the high oil price rose and poor weather caused flights to be canceled. Pretax losses for the six months to March 31 will be around £160 million compared with £78.7 million a year earlier. Associated British Foods (ABF) and Dominoes Pizza (DOM), dropped 3% and 6% respectively on fears of the impact of rising food ingredient prices. Prices of many commodities continue to rocket to multi year highs due to bad weather, speculation and the effect of the falling dollar (as many of these commodities are sold in US dollars). Ultimately, this may feed through to rising retail inflation and rising interest rates which will curtail economic growth.

As I predicted in my forecast for 2011, the year would be choppy with many opportunities to buy on corrections and many opportunities to sell on market peaks (see my post on the FTSE and DOW for 2011 http://contrarianinvestoruk.blogspot.com/2011/01/prediction-for-ftse-100-and-dow.html)

Imagination rumours on Apple Ipad2 chips may be interesting opportunity

I bought into the chip licenser, Imagination technology (IMG),  this morning after reading a lot of specification rumours relating to Apple's forthcoming Ipad2 and IPhone 5 over the weekend. It looks likely that Imagination chips will be in the new devices, with shipment in Q2 2011. For example:

http://www.macrumors.com/2011/01/16/ipad-2-to-sport-a-dual-core-gpu/

"With the rumors of a 2048x1536 high resolution screen for the iPad 2, one question that has emerged is what graphics processing unit (GPU) can adequately power the device. AppleInsider claims that the new iPad (and iPhone 5) will use a dual-core SGX543 GPU from Imagination Technologies.
A source familiar with Apple's graphics strategy says the company will not only be upgrading its video core, but also going to multiple cores, a feature that is designed into the SGX543 design. The most likely configuration of Apple's next custom chip is reportedly the SGX543MP2, which pairs two SGX543 cores to work as one, offering around four times the capability of the previous A4 in graphics and video tasks.

We had previously revealed that the latest iOS 4.3 beta SDK had drivers for the new SGX543 GPU, so it should be no surprise that it is the most likely contender to be the next GPU for the iPad. Meanwhile, when it was first announced it was billed as a very capable multi-core chip:
In other words, the SGX543 can have any number of cores from two to sixteen with no change in the driver software or the application. All that complex data/pipeline/thread management is done in hardware. No muss, no fuss.

If Apple indeed is pursuing a very high resolution screen for their iPad 2, it makes sense that they will also have to comparable upgrade the underlying horsepower of the device. Meanwhile, another rumor had pegged Apple's new A5 CPU to also be a multi-core chip."

Trading on a forward price/earnings (P/E) for April 2012 of 34, IMG is not especially cheap but if the rumours of further Apple deals are true then revenues should come a lot higher than the £127 million pencilled in for 2011/2012.