Touchstone Exploration (AIM:TXP), a Canadian-based company focused on the Oil and Gas sector, has enjoyed a strong rise in its share price since it started trading on the AIM market. The company’s shares peaked at 17p in October, but have since pulled back to 14p on the offer. On listing in June, Touchstone raised £1.45m from UK investors by way of a private placement, which included an offer via the Teathers App at 7.25p. Yesterday, Touchstone released its financial results for the third quarter of 2017, but the share price has fallen. Is the market being overly pessimistic in its view?
Operationally, production is up to 1437bpd (barrels per day), an increase of almost 15% compared with the same period last year. The company has an extensive drilling programme and as mentioned in a previous presentation by CEO Paul Baay, it is targeting 2000 bpd of production by the end of 2018.
In line with company policy, Touchstone has not yet released the sustained flow rates from its latest two wells. These results are expected imminently. EncouraginglyTouchstone does not report Initial Production (IP) rates. This is an encouraging sign of a quality management team, which is focussed on reporting genuine growth rather than stock promoting.
The oil market recovery continues and the benchmark price of Brent has improved significantly. The Operating netback to Touchstone was $24.46, a 30% increase over the past year.
Overall, the results appear to say ‘steady-as-she-goes’. Today’s price dip on news is not unusual on the often drama-hungry AIM market. The results don’t immediately scream ‘must buy’ and they have arrived against a backdraft of profit-taking after a recent meteoric share price rise.
We have covered Touchstone a number of times on this site, and in our first piece we compared the market discrepancy in valuation of the company compared to other AIM-listed Trinidadian oil producers. As I write, Touchstone’s Market cap is £11.5m and dividing that by its current production rate of 1473 bpd gives a ‘market value per flowing barrel’ of £7,807. This is still a long way short of the value attributed to other oil producers on AIM such as Trinity with its current £47.3m market cap and 2506 bpd production. By comparison, the value per flowing barrel for Trinity is £18,874.
We suggested Touchstone Exploration was undervalued when it first listed on AIM, and after a subsequent strong climb in share price it appears the market agreed. Communication was a little thin on the ground in the immediate period after listing (and we did highlight this in an earlier piece), but in recent months the board has successfully delivered its message, and sustained interest in the company’s progress is evident.
It is early days chart-wise but from a technical analysis point of view an obvious but tentative support level may be found at 14.1p, where Touchstone last closed. If that fails I suggest the 50-day moving average may offer a reversal around the 12p mark. The Relative Strength Index (RSI) has significantly fallen to around 50, after spending much of October very overbought giving adequate headroom for another push north.
To watch our recent webinar presentation by Touchstone CEO Paul Baay, click here.
Author: Stuart Langelaan
Disclosure: The author of this piece does not own shares in the company written about above nor has he been paid to write this article