Touchstone lights the touchpaper on production growth – is the share price set to follow? (TXP)

At the risk of appearing to be ramping it hard, I must highlight the Touchstone Exploration (LSE: TXP) chart. The stock is still languishing around 11.5p – the price of the Placement back in December which raised £3m to accelerate the company’s drilling campaign.

A look at the chart shows we’ve seen several successful tests of 10.5p support, and the Relative Strength Index (RSI) has edged to its midpoint providing plenty of headroom should a move north be on the cards. The problem here seems to be a lack of volume and it’s difficult to buy stock in size –  obviously macro concerns are having an impact too at the moment.

As with many shares on AIM today, the spread has been kept particularly wide giving a somewhat false impression of price – I note the price drop to 10.5p today was an ‘error trade’ which was swiftly corrected.

Having listened to the presentation by CEO Paul Baay last night, I believe there’s a widening disconnection between a reasonable valuation of Touchstone and its share price. In particular, Baay mentioned the likelihood that cashflow in Q4 this year could be as much as the previous three quarters combined. If Brent continues to range around $65-70 a barrel, generated cash flow of $1m a month is plausible, and Baay highlighted that further growth of the company is achievable without raising additional funds. Bearing all this in mind, the current Market Cap of £15m does appear to offer significant upside.

Author: Stuart Langelaan

Disclosure: The Author owns shares in the company mentioned above.

Teathers Financial Plc, the 95% owner of ValueTheMarkets.com, has been paid for hosting this presentation of the company mentioned above.

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