After a disappointing few months, cash shells Pembridge Resources (LSE:PERE) and Path Investments (LSE:PATH) are now trading at notable discounts to the prices they raised money at. With both firms on the hunt for their first deals, at least one of these stocks could turn out to be a steal.
Digging for returns
Pembridge Resources is a mining focused cash shell, which plans to invest in a portfolio of projects across the base and precious metals sector.
The company plans to deliver shareholder returns through capital growth and, at some point in the future, even hopes to be in a position to provide dividends. It is backed a sturdy set of hands; chief executive David Linsley is a former executive director at mining analysis firm Behre Dolbear, while chairman Frank McAllister was chief financial officer at mining giant ASARCO in a previous life.
After going into suspension on the AIM index, the company re-listed on the Standard List of the London Stock Exchange in August, as part of a placement and subscription to raise up to £2.5m at 1.6p a share. The placing, which was accessible to private investors through the Teathers App, represented a 39.6pc discount to Pembridge’s closing price at suspension.
Since the listing, a lack of news flow has seen Pembridge decline in value. It can now be bought on the offer at 1.3p, down from 1.4p in September. This may sound disappointing but, with Linsley and his fellow directors promising to receive no salary until Pembridge completes a deal, the firm genuinely seems to have the best interests of its investors at heart.
When we questioned Linsley about this in September, he said this caveat would not result in the company rushing through a transaction in order to get paid, assuring investors that the firm is simply trying to find its perfect first deal.
‘It is extremely important that we pick the right asset as our first deal, which is both appropriately priced and meets our primary goal of being cash flow generative in the near term,’ he said at the time. ‘We are currently assessing deals in North America, Africa, South America and Europe and have been able to accelerate our due diligence since securing funds in mid-August.’
With miners being bolstered by bullish metal prices year to date – gold has risen 10.1pc, copper is up 19pc, and palladium has jumped 44.3pc – early Pembridge investors could be heftily rewarded if the firm puts its money to work.
The right Path
Also listed on the Standard List of the London Stock Exchange, Path Investments is an energy investment company focused on buying and developing producing and near producing assets in financially and politically stable economies.
With names such as former Global Marine Energy chairman Brent Fitzpatrick MBE and successful investment banker Christopher Theis on its board, Path is backed by a wealth of experience in the energy market.
The company joined the exchange in an IPO in March this year, also available to private investors via the Teathers app, which raised £1.4m by placing shares at 1p each. Unfortunately Path has yet to report any significant progress in securing its maiden deal. As a result the shares have fallen (no surprise there). They can now be bought on the offer at just 0.75p, giving the firm a market cap of just £1.47m.
Despite not making a deal in the last five years, Path believes the sharp decline of oil and gas prices over the last three years has created a significant number of acquisition opportunities which will continue to show themselves over the next two to three years. Specifically, it is looking for assets, which are underperforming, undeveloped or undervalued and can provide income and development potential.
In its half year results, Path said it has considered 27 potential investment opportunities since listing, with seven investments currently under consideration and two in the advanced stages of discussion. Somewhat worryingly, it has provided no update since.
However, it is worth noting that Path’s prospectus states that the firm will consider delisting if no acquisition is announced by the second anniversary of its admission. One has to assume the directors are mindful of their self-imposed deadline, meaning there is a good chance that a deal will be struck next year.
The energy landscape has been somewhat mixed this year, with Brent oil prices having risen 8.3pc while natural gas has fallen 22pc. If you think the only way is up, then taking a punt on Path while it is still cheap could maximise returns.
Disclosure
The author of this piece does not hold shares in either of the companies written about above.
