GW Pharma moves down as Sativex UK approval awaited

GW Pharma (GWP) has continued its downward move since hitting the 130p mark at the interim results in April. Lack of buying pressure means that it looks like the price is being walked down by a few pence a day to its current 114p by the market makers and further weakness may be evident before final approval and launch of Sativex in the U.K.. The company expects these milestones to be hit by the end of June. After several sales of GWP around the interims and then around a week ago in the £1.20-1.30 range, I continue to hold but with a reduced number on this downward drift. Any large fall back to the £1.00 level will be a buying opportunity and chance to top up. As we saw following the regulatory announcement in March, GW can be volatile and easily trade in a 30p range on no news.

Some buying opportunities on weakness

The FTSE 100 continued to fall today and is currently down 55 to 5,011 after falling below the 5,000 mark earlier in the day. A move back to the 5,000 level has meant that I have been making some selective buys on weakness on stocks I have been watching for the last few weeks as they hit my target price. Although further falls in the market are possible, quite a few names are back into the "good value" range. Timing the absolute bottom is never easy, so its a question of picking away rather than going all in.

BP (BP.) is down 19p or 4.4% to £4.11 following US president Barack Obama's comments that he'd sack the British company’s chief executive Tony Hayward. During an interview due to be aired tonight he said "He wouldn't be working for me after any of those statements," referring to Haywards comments like "it's a big ocean". A second piece of bad news came for BP when Russia’s state-run gas giant Gazprom said it had no need for the British oil company’s Kovykta gas field in Siberia which at one point in 2007 was said to be worth nearly $1 billion. Although I am a little nervous about BP, I today bought a position at £4.13 with a 5% guaranteed stop loss given the speculative nature of this share.

Rockhopper (RKH) announced that it had raised £48.5 million for the further development of its North Falkland basin field with the issue of 17,320,000 new ordinary shares at 280 pence each. I took the opportunity on this news to re-establish a holding in the company at £2.86 following yesterday's 8% fall as rumours of the placing circulated. I have also bought a small holding in Falkland Oil and Gas (FOGL) for potential gains on a discovery on the Toroa prospect which is currently being drilled to a depth of 2700 metres and was spudded on June 1st.  Target depth is expected 35 days from June 1st.

The fall in ITV (ITV) back to 52p also was taken to buy back a holding in the company which has drifted from the low 70p range in the last month or so and should benefit from an increase in advertising during the World Cup.

BP taking the flak for Deepwater horizon disaster but what about others?

Since the Deepwater horizon disaster in the Gulf of Mexico BP's (BP.) share price has fallen from around £6.50 to today's £4.38, a drop of 33% wiping £40 billion of its market capitalisation. Although little is being said in the media of the other company's involved in the rig disaster, they too have seen their share prices hit hard. President Obama and the U.S. oil industry seem to be keen to maximise BP bashing whilst forgetting that U.S. companies like Anadarko have major interests in the well.

Anadarko Petroleum(APC) owns 25% of the well, Transocean Ltd. (RIG) operated the rig, Halliburton (HAL) provided the drilling equipment and Cameron International Corp. (CAM) provided the failed blow out preventer. Transocean has fallen from the high $80's to $50 since the disaster and Halliburton has fallen from $35 to $23.

Deepwater drillers not involved in the Deepwater horizon have also fallen heavily as the Obama administration announced a 6 month moratorium on new deepwater drilling. For example, one quality stock which stands out is Noble Corp (NE), falling from $43 to $27 and now trading on a forward price/earnings of around 5. At this price level it looks a tempting entry point as the block on drilling will be unlikely to be retained for any length of time given the pressure to find new sources of oil.

For the Contrarian Investor UK portfolio some of the oil names such as Conoco Phillips (COP) at $50 and Chevron at $71 looks tempting. The sector has taken a tremendous hit on the negativity surrounding the Gulf of Mexico issues and the effect of the oil price moving back into the low 70's. The oil price has moved down as speculators started to bet against the commodity when it moved into the 80's and the strengthening U.S. dollar also reduced it's value. I am looking at an entry point in some of these stocks if markets look weak again during the early part of this week.

Continued economic worries move down stocks

The after effects of last Friday's disappointing U.S.jobs numbers and fears about the health of Hungary and other European economies are moving stocks down this morning. The FTSE 100 is currently down 73 points to 5,051 and Dow futures are down a further 40 points to 9,897. Commodity stocks are baring the brunt of the pain with metal prices falling heavily - Kazakhmys (KAZ) is down 3.5% at £10.80 and Aquarius Platinum (AQP) is down 5% to £3.41.

BP (BP.) moved against the trend with a 5p rise to £4.38 as they reported some success in stemming the flow of oil from the damaged well in the Gulf of Mexico.

Tidjane Thiam looks like escaping the chop at Pru

After the Prudential (PRU) pulled out of its audacious bid for U.S. insurer AIG's Asian business AIA on Wednesday, it looks like Chief Executive Tidjane Thiam will be let off the hook for losing shareholders £450 million in investment banking fees and break clauses (which amount to £150 million).

With large institutional shareholders refused to play ball and said they would vote against the deal to pay $35.5 billion for the AIA assets (a 75% yes shareholder vote was needed), Thiam's team went back to AIG, which is 80% owned by the U.S. Treasury, to ask for a 10-15% reduction in the price. Unfortunately, the AIG board voted down this idea and the Prudential was forced to concede that the deal was no more last week. This was a somewhat surprising result, given the alternative option for AIG is an Asian flotation of AIA with all its uncertainties. However, there were fears that even with a price cut to $30 billion or so, the deal might still have been rejected by shareholders, leaving AIG with red faces all round.

Although the deal to buy AIA's assets looked great on paper in that it would make the Prudential by far the largest insurer the fast growing Asian region with the potential for significant cost cutting through integration synergies, institutions were concerned about the premium that the Pru were paying. The big mistake that Thiam made was to underestimate shareholder resistance and convince key shareholders even before the initial negotiations were finished. The Pru wrongly assumed that with a bit of persuasion after the event, institutions could be brought to the table to stump up the huge capital needed for the rights issue.

So the Pru management has been left with egg on its face and owners of the shares seriously out of pocket. At £450 million, it equates to 18p for every share. Shareholders must be hoping that Thiam drives value in a big way over the next couple of years given his £5 million pay package.

Portfolio review of the week June 5th 2010

After a week of significant volatility, markets fell heavily yesterday, with the Dow Jones Industrial Average falling on disappointing jobs news from the U.S. and fears of a spread in the European debt crisis due to Hungary. The Dow fell 323 points, or 3.2%, to 9,931 and finished the week below the key 10,000 mark and 2% lower for the week. The Nasdaq Composite dropped 84 points or 3.6% on Friday to finish at 2,219 and down 1.7% for the week. The S&P 500 dropped 3.44% or 38 points to 1,065 with a fall of 2.3% for the week. The FTSE 100 fell 85 points or 1.6% to 5,126 on Friday and finished down 1.2% for the week. However, FTSE futures are pointing to another 50 point drop on Monday since the worst of the Wall Street falls were not seen until after the close of the European markets.

Industrial and infrastructure stocks (e.g. Caterpillar CAT down 5.5% at $57.7) were hit particularly hard as a weakening euro means that revenues will be hit as the sales are translated back to dollars on currency conversion, plus any weakening of the European economies will hold back sales volumes. In addition, a weakening of commodity prices such as oil (which dropped over 4% to $71) and banking fears hit financials, energy and commodity stocks - Conoco Philipps (COP) was down 3.7% to $50, Barclays (BARC) was down 4.7% to £2.88, BHP Billioton (BHP) dropped 3.7% to £17.71.

The key reason for the decline was that U.S. non farm payrolls rose by only 431,000 last month, short of expectations for a rise of 515,000 jobs. Most of the rise was due to temporary census staff hiring (which created 411,000 jobs) and only 41,000 private sector jobs were created (against 218,000 in April). There were also downward revisions to payrolls in March and April, both 22,000 lower at 208,000 and 290,000 respectively. The unemployment rate dropped to 9.7% in May from 9.9% the previous month, in line with expectations.

On top of this the euro got a battering with a fall below the $1.20 level against the dollar being the lowest point for four years as fears that Hungary may suffer a Greek style debt crisis emerged. Hungary is in the European union but not part of the euro. However, after the concerns about Spain last week, worries about Hungary have given investors plenty of reasons to be pessimistic about the state of European finances and the health of its banks. A spokesman for Viktor Orban, the Hungarian Prime Minister, suggested that his country had only a slim chance of avoiding a Greek-style debt crisis. Peter Szijjarto, the Prime Minister’s spokesman, said that his Government was “ready to avoid the path that Greece took ... After realising what reality is, we will not hesitate to act.” The potential exposure to any Hungarian default by European markets is a stark reminder that the write-down's of the banks may not be over.

The Contrarian Investor UK portfolio has had limited trading over the last 2 weeks due to holiday. But positions were initiated in Coal of Africa (CZA) at 104p and BP at £4.19. The Coal of Africa position is retained but BP was sold on Thursday at £4.50. Short term trades were all put in play on Barclays (BARC), Man Group (MAN) and Prudential (PRU) which were all closed within a day or two as the market rebounded from the market falls late in May. The falls of last week have put some interesting opportunities on the table and I will take these on any further weakness during the early part of next week especially if the FTSE moves below 5000 again. Any fall in the U.S. S&P 500 below the key technical 1,050 level will be watched with interest.

It was disappointing not to be involved in the huge spike in the Falkland Islands oil shares yesterday after Rockhopper (RKH) issued a very positive technical update on its Sealion oil find in the North Falklands basin. RKH finished up 33% at £3.19, Desire Petroleum (DES) was up 22% at £1.00 and Falklands Oil and Gas (FOGL) was 10.5% at £2.06. Rockhopper upgraded the size of the find to 242 million barrels recoverable with further increases likely. After seeing the price drop to below a £1.00 on Wednesday on false rumours of a poor quality oil discovery (and possibly some sort of manipulation), buyers at this point have seen a 300% plus increase. After having my finger on the trigger to buy at these levels I am frustrated that I didn't proceed. Nice profit missed. It is incredible to think that Rockhopper was trading in the 35p range as little as a few weeks ago before the results of the Sealion appraisal well. So continued holders are nearly at the "ten bagger"stage. You don't see too many of these trading opportunities and I am sure that many have profited nicely. I am also sure that many lost a lot of money during the "flash crash" of Wednesday. It has been positive to see some good profits in these Falkland Islands shares, but what could have been if I'd had the nerve!?

Markets looking strong today after rise in U.S. last night

On Wednesday, the Dow Jones Industrial Average gained 225 points or 2.3% to close at 10,250 with all 30 components closer higher. The Nasdaq Composite Index rose 2.6% or 60 points to finish at 2,281 and the S&P 500 rose 28 points to 1,098. The rise was driven by an industry report that pending home sales were up 6% in April. However commentators have noted that this is probably as a result of buying activity ahead of the expiry of a tax credit.

The FTSE 100 is currently up 85 points to 5,237 with miners in particular helping the index. For example Rio Tinto is up 3.5% to £32.47. BP (BP.) bounced this morning following news that progress to cut off the flow of oil had progressed after a jammed cutting saw had been dislodged at the well head. After being as high as 4.5% up at 450p, it is now 15p higher at 444p. Dow futures are up 26 points.

Rockhopper suffers its own "flash crash"

Contrarian Investor UK blog is back in action after a 2 week break and what a period its been with the markets falling heavily and the U.K. blue chip bell weather BP (BP.) falling close to £4. Then there was Prudential (PRU) backing away from its Asian AIG acquisition following institutional share holder pressure. As they say, a week is a long time in politics but a lifetime in investing!

On May 6th 2010, the U.S. Dow Jones Industrials suffered what is now termed a “Flash crash”. Within a 5 minute period starting at 2.47pm, the index fell 990 points or 9%, then, in around 90 seconds, the index regained 543 points. At the close, the DOW recovered to be down 347.8 points or 3.2%.

The cause of the "flash crash" is still not certain, but various theories have been explored by the U.S. SEC (Securities and Exchange commission). First there was the the "fat finger theory". Although now discounted, there were rumours that a trader mistyped a sell order, mistakenly selling billions of dollars of shares rather than millions. Then attention was focused on automated computer trading systems of the DOW index which may have caused an avalanche of sell orders, particularly platforms which used high speed trading (buying and selling stocks within seconds). Again this seems to have been a contributor to the fall but not the only cause. But the most likely explanation was a sudden loss of liquidity in the market with a huge amount of sellers overwhelming a very limited number of buyers exacerbated by stocks automatically selling on automated stop loss orders. The loss of buying strength was caused by false rumours in the market that the euro was on the verge of collapse and a major bank had gone down in the style of Lehman.

Today Rockhopper Exploration(RKH) inexplicably suffered its own "flash crash". After trading at around the £2.70 mark for much of the day it suddenly began to fall at around 12 noon, falling through the £1.00 barrier and moving into the 60's at its low. The company was forced to issue a news release at 13.52 stating "notes the significant share price movement today. Rockhopper is not aware of any reason for this movement but makes the following update...". Like the DOW flash crash the reasons do not seem to be clear. Some have speculated that this was a market maker induced "tree shake" to flush out sellers and fill orders for large institutions. However, the scale and speed of the falls not only in Rockhopper but also in Desire Petroleum (DES) and Falkland Oil and Gas (FOGL) makes this appear unlikely. It is possible that a "fat finger trade" occurred of sufficient size or more likely a relatively large institutional sell order (a 125,000 sell occurred around 12) which may have destabilised the market in the shares and triggered a cascade of sell orders as automatic stop losses were triggered electronically. As many private investors hold the stock it is plausible they were using automatic stop loss orders which added to the selling panic. Like the DOW "flash crash" a sudden loss of liquidity moved the stock to unbelievably low levels before buyers returned and moved it back to a more normal trading pattern. False rumours of problems relating to the quality of the oil find also seem to have been circulating in the City which added to the downward pressure.

So what are the lessons for private investors of the Rockhopper debacle. First be very careful with stop losses on risky small cap shares since a market maker "tree shake" or sudden rise in selling pressure can move the share price through your stop loss and then before you know it the price has rebounded and you are out of pocket. If you prefer to use stops, them make them wide and normally you won't be caught out (but today's unprecedented Rockhopper fall would still have been difficult to predict in terms of setting a realistic stop loss level). Don't assume a large move in the share price of a small cap is connected with a real news event. False rumours can crush the price temporarily before the false stories are countered.

I was looking to buy into Rockhopper today with the volatility in the 80p-100p range but the sudden moves were frightening even for me without knowing what was going on. Given the news flow to date it seemed unlikely that the reported oil reservoir had come to nothing. But my concern was for an accident BP style on the Ocean Guardian rig in the Falklands so I held off buying. If I'd had the nerve it would have been a very profitable trade indeed. Something seems to have gone very wrong today in the trading of Rockhopper shares and it is probably the small investor that has taken the brunt of the pain.

Limited posts on Contrarian Investor UK blog

As I'm holiday for a couple of weeks, postings on Contrarian Investor UK might be few and far between for the next couple of weeks due to limited internet access. Sorry readers!

p.s. nice to see Rockhopper (RKH) bounce back over £2.20. Profits taken. At £1.70 it was a steal! Half my GW pharma (GWP) position was sold at £1.29 following the interims, the rest will be retained for the Sativex approval news in June.

Rockhopper sells off hard as market uncertainty hits small caps

Rockhopper exploration (RKH) dropped 18% today to 173p despite news from the company that it will know in 10-15 days how big its discovery on the Sea Lion prospect will be after initial results indicated a substantial reserve. The well itself is being suspended for future testing. The company is now valued at only £300 million, £70 million more than fellow Falkland Islands oil explorer Desire Petroleum (DES) which seems unwarranted given RKH has struck oil and DES has to date not.

The market panic created by German Chancellor Merkel's comments about the euro is exactly the sort of negativity that Contrarian Investor UK likes and several good opportunities have been thrown up in the panic. After buying some Rockhopper today on the sell off, I will be looking to add to the position on any further weakness given the expected news in just over a week. Given the news released to date from sea lion and the heavy institutional buying since the oil discovery (for example by relatively conservative Ignis which owns 2.7 million shares and 4 million contracts for difference) Rockhopper seems very good value at these levels, particularly in comparison with the other Falkland Island drillers. The greatest profits are to be made when others are hitting the sell button!

It's GW Pharma (GWP) interims time tomorrow, which I await with great expectation. The shares finished up 1p today at 130p.

German short selling of bonds ban worries market - send dollar to four year high against euro

The FTSE 100 is currently down 128 points to 5,177 after a fall of 115 points to 10,511 last night on the DOW industrials as traders reacted negatively to the news that German authorities are banning naked shorting of certain financial instruments in the debt market.

The euro fell sharply to hit a four year low against the U.S. dollar of 1.21 versus a 52 week high of 1.51. The rise in the dollar sent commodity stocks sharply lower this morning with BHP down 5% to £18.35 and financials are also under pressure with the likes of Barclays down over 6% to £2.86. BP continued its slide down to hit £5.26, a fall of 1.5%. After announcing its rights issue on Monday to acquire the assets of AIG's Asian unit AIA, Prudential shares are down over 4% this morning to £5.09 as analysts still remain unconvinced about the deal.

The heavy fall in Ithaca Energy (IAE) to £1.53 on no news (down 15p, 9% today) has made it a buying opportunity and this has been added to the portfolio this morning. The volatility is Ithaca is amplified by its dual listing on the Toronto Stock Exchange (TSX) and the London Stock Exchange (LSE) which means that currency and trading in Canada have an impact on the U.K.price. WTI crude oil went below $70 yesterday (the lowest point this year). 

Portfolio review of the week May 16th 2010

The Dow Jones Industrial Average was down up to 200 points on Friday but finished the day down 162 or 1.5% at 10,620. Despite Friday's weakness, on the week, the Dow Industrials rose 2.3% , the S&P 500 rose 2.2% to finish at 1,136 and the Nasdaq composite rose 3.6% to 2,347. The FTSE 100 rose 2.7% on the week, despite Friday's fall of 170 points to close at 5,263.

After the announcement of the 720 billion euro ($1 trillion) European Union/IMF bail out at the beginning of the week and a large relief rally after heavy falls at the end of the week before, the markets remained increasingly under pressure as the days passed.  Real concerns began to surface that the eurozone may not be able to get its debt under control within slowing economic activity to a snail's pace.

The Contrarian Investor UK portfolio took the opportunity to sell positions initiated during the market weakness the week before when the eurozone bail out euphoria hit on Monday. So Coal of Africa (CZA) and Ithaca Energy (IAE) were both sold at a profit. I am now again sitting largely on the sidelines with the majority of my equity holding in GW Pharma.

GW Pharma (GWP) - Despite the volatile week on the markets, GWP's share price continued to make good progress. The shares rose over 10p or 8.7% on the week to finish at 127p as the company is due to make its interim results announcement on Thursday and an update on the regulatory approval status of multiple sclerosis drug, Sativex, is eagerly awaited. I continue to hold this a core position since it is likely that Sativex will be launched by partner Bayer Schering in June barring any regulatory set backs but this seems unlikely given the update given by the company in March.

Resurgence of worries about eurozone spark Friday sell off

Stock markets fell heavily around the world and the euro fell to a 19 month low against the dollar on concerns that austerity measures may curtail growth and that the bail out may be too small to prevent further problems in the PIIGS economies (Portugal, Italy, Ireland, Greece and Spain). In addition, there are worries that cuts in public spending and increases in tax will lead to civil unrest as we have already seen in Athens which may make them difficult to implement, keeping debt levels too high.

The DOW industrials are currently down 170 points or 1.6%, the FTSE 100 fell 171 points to 5,263 (a 3% drop) and the Spanish stock market fell over 7% today.

Fears are growing that one of the engines of recovery, consumer spending, will reduce as consumers are faced with higher taxes as European governments struggle with large structural public spending deficits and a rising debt to GDP ratio. Portugal increased income tax between 1% and 1.5% and VAT will be increased by 1% to 21%. On Wednesday, Spain announce major cuts in public spending and civil service pay will be cut by 5% this year and frozen in 2011 as well as pensions being frozen. The Spanish government is planning to reduce the deficit to 9.3% of GDP this year and to 6.5% in 2011, down from 11.2% in 2009.

The new UK Conserative/Liberal Democrat government is expected to announce an emergency budget in June with rumours already circulating of an increase in VAT from the current 17.5% or a widening of its scope to items such as children's clothes or food.

GW Pharma has positive momentum as interim results beckon

Last night, GW pharma (GWP),  confirmed its interim results would be next Thursday (May 20th). It is likely that expectation of updates on the regulatory approval status of Sativex in the Europe has begun to move the stock and it is currently up around 5% to 126p to buy. In addition it is hoped that further news about the U.S. FDA application for cancer pain will be available. At 126p the stock is still below the level it reached in March when the last regulatory update was given and I am hoping that we will see a level much higher than this once Sativex has passed all the hurdles for the registration in Europe. The company were confident that the drug would be approved by end of Q2 i.e. June at the last major announcement.

Appetite for Eurozone bail out fades

Markets across Europe and Dow Futures are all down today after yesterday's euphoria about the IMF/EU $1 trillion bail out faded.  Concerns are being voiced that the deal will help countries like Greece and Portugal but deal only with symptoms not the cause of the problem. For example, systemic under payment of taxes is an ongoing problem in Greece which has only been marginally addressed. There still may be trouble ahead to ratify the deal since French and German voters are reluctant to help these weaker economies when they are seen to have caused their own problems with social security systems they can ill afford. The question is whether throwing hundred's of millions of euro's at these weak economies will ultimately postpone the inevitable defaults on their unsustainable debt.