Top Analyst Recommends Prolific Stocks

Born in France, Stephane Foucaud worked in the oil and gas industry for ten years. Then for 17 years, he worked in investment banking, focusing on small, natural resources companies in the energy space.

His most recent positions were with FirstEnergy Capital (then bought by GMP and now part of Stifel) in London, which Foucaud described as a "very successful broker-dealer focused energy based in Calgary at the time."

"There must be an opportunity where investors can make a multiple in terms of return of what they invest," Foucaud said.

In 2008, together with three other partners, he opened the offices of FirstEnergy Capital in London, which was acquired in late 2019. He then decided to set up a shop, focusing on natural resources. 

Foucaud told Streetwise " In late 2019 and early 2020, the sector was not pitching well because of climate change pressure. And there were a lot of investment opportunities in the micro-cap to small-cap space. So we decided to focus on this unloved sector that includes international junior oil and gas, natural resources, and energy names, with their shares typically listed in the UK, Australia, Scandinavia, the U.S., and Canada. We are looking for names that are mispriced or that are orphans on their home markets and where our support could make a difference"

In 2019, Foucaud became a founding partner for Auctus Advisors. According to its website, Auctus Advisors is an equity capital markets and advisory business focused on the Energy sector. Auctus has a boutique approach, focusing on quality over quantity. It prides itself on its high-quality fundamental research, for which Stephane Foucaud is one analyst.

Because Foucaud is not only a part of Auctus Advisors but an analyst in his own right, we here at Streetwise Reports thought we should sit down with him to go over what companies he has on his radar for 2023.

Opportunity-Driven

Foucaud explained that when it comes to what companies Auctus covers it is all "opportunity-driven."

He said, "The name of our business 'auctus' means growth and wealth in Latin. And we are focusing on small companies that offer that in the small gap, energy space . . . There must be an opportunity where investors can make a multiple in terms of return of what they invest."

However, while the firm is boutique it has a vast outreach and works with companies all over the globe. 

Arrow Exploration

The first company Foucaud touched on was Arrow Exploration (CSTPF:OTCMKTS). Arrow is a Canadian exploration company.  According to the company, Arrow is a "self-funded portfolio of underexplored, high-growth Colombian oil assets."

Regarding Arrow, Foucaud stated, "this is a story of rapid production growth, with a very dense drilling program that is about to start." However, it wasn't always that way. Foucaud mentioned that the company didn't really take off until a new management team came on board in 2020. This team really took control of Arrow and ran with it. 

Foucaud likened the company now to a "quasi-private equity business" in regard to how the company is now being managed. He said Arrow is "focusing on operation and delivering on steep production growth target while living within its cash flow," which is one of the reasons he likes it.

On February 1, 2023, Foucaud gave Arrow a £0.45 target price. (The share price at the time was £0.18.) In the research report, he wrote that the company was "on track for a very busy 2023" as it plans to begin a 10-well drilling program, which Foucaud believes could "add between 2,800 and 4,800 boe/d net production (before decline and in a success case) to the existing constrained production base of ~1,800 boe/d."

In terms of valuation, Foucaud forecasted the company to have "~US$25 mm in net cash at YE23 and ~US$60 mm at YE24," representing  ~90% of the share price at the time. 

According to Reuters, 29.67% of Arrow's stock is held by management and insiders. Out of management and insiders, Tim Leslie holds the most at 3.45%, with 7.61 million shares. Director Gage Jull is at 1.81%, with 4 million shares, CFO Joe McFarlane is at 1.75%, with 3.87 million shares, and CEO Marshall Abbott is at 1.62%, with 3.58 million shares. 

38.96% is with institutions and strategic investors. Top shareholders in that category include  Canacol Energy Ltd., which has 18.91%, with 41.72 million shares. Edale Capital LLP. is at 6.21%, with 13.70 million shares, and Yacktman Asset Management LP. is at 2.72%, with 6 million shares. 

The rest is in retail.

Arrow Exploration has a market cap of US$49.77 million and 217.9 million shares outstanding. It trades in the 52-week range between US$0.0111 and US$0.2474.

You can view the company's investor presentation here. 

Zephyr Energy Plc.

The next company Foucaud touched on was Zephyr Energy Plc. (ZPHRF:OTCMKTS;ZPHR:LSE), a company which Auctus recently put out a research report for. Zephyr is an oil producer headquartered in the United Kingdom, focusing on its flagship asset in the Paradox Basin, Utah where the company holds a 39,473-acre leasehold.

Zephyr acquired its Paradox Basin position a few years ago, according to Foucaud. He said, "there was a bit of a restructuring with a new shareholder coming in that took control of the company. It injected some modern technology by applying 3D seismic, directional drilling, and fracking on their key asset and they have had exceptional results." 

On February 15, 2023, Foucaud furthered his opinion on Zephyr, giving it a target price of £0.20, when the share price at the time was £0.06. He mentioned that for the fourth quarter of 2022, sales volumes averaged 1,192 boe/d, resulting in 1,490 boe/d for 2022, which was not only aligned with Auctus' valuation but at the top end of the company’s own guidance. 

Looking forward, Zephyr reiterated its guidance for net production in Williston for 2023, which is 1,550–1,750 boe/d. Zephyr will also start production testing for the State 36-2 LNW-CC well in the fractured Cane Creek reservoir interval.

On this Foucaud said, "This is a very important well for the company that could add production and reserves."

"Success in [Cane Creek's] C-9 reservoir around year-end 2023 could add a further £0.12 per share [to the target price]," Foucaud added. 

According to Reuters, 14.20% of Zephyr's stock is with management and insiders.

Of management and insiders, Roy Grainger Williams has 1.48%, with 23.67 million shares. Non-executive Chairman Rick Grant has 0.94%, with 15 million shares, and CFO Chris Eadie has 0.45%, with 7.23 million shares. 

28.53% of the stock is held by institutions and strategic investors. Tyndall Investment Management Ltd. has the most out of this category at 10.91%, with 174.21 million shares.

Origin Creek Energy LLC. is at 9.96%, with 158.95 million shares. Edale Capital LLP. is at 2.31%, with 36.95 million shares, and Premier Asset Management Ltd. has 0.98%, with 15.62 million shares.

The rest is in retail.

Zephyr Energy has a market cap of £94.19M and 1.6 billion shares outstanding. It trades in the 52-week range between £3.76 and £8.15.

You can view the company's investor presentation here.

Southern Energy

Stephane also spoke about Southern Energy Corp. (SOUTF:OTCMKTS). Southern Energy is an oil and gas producer located in Alberta, Canada, with a focus on its oil and gas properties in the United States, primarily Mississippi.

Foucaud was optimistic about the outlook of this company saying, "they're embarking on a drilling program that could triple production in the next few months. . . they got very good results last summer, and they're looking to basically expand on this success. We are talking about taking production from 3000 barrels a day now, to probably 9000 barrels per day by the summer. This is a U.S. gas story and the share price has suffered from the drop in U.S. gas prices. A rebound in U.S. gas price from the current level would be a further big positive for the name."

According to Reuters, 26.53% of Southern Energy is held by management and insiders.

President and CEO Ian Atkinson, P. Eng. has 2.73%, with 3.76 million shares. CFO Reginald Stevenson Smith has 0.89%, with 1.23 million shares and Director Bruce Michael Beynon has 0.59%, with 0.82 million shares. 

35.19% is with institutions and strategic investors.

Venture Equity Bulgaria EAD has 11.28%, with 15.58 million shares.  Svetoslav Bojkov Bojilov of Venture Equity owns 10.02% himself, with 13.84 million shares.

Canaccord Genuity Wealth Management is at 4.01%, with 5.53 million shares. Palos Management Inc. is at 0.72%, with 1 million shares, and StoneCastle Investment Management Inc. is at 0.35%, with 0.48 million shares.

The rest is in retail. 

Southern Energy has a market cap of CA$$56.39 million and 137.57 million shares outstanding. It trades in the 52-week range between CA$0.0360 and CA$2.8000.

You can view the company's investor presentation here. 

Valeura Energy Inc.

Finally, we touched on Valeura Energy Inc. (VLE:TSX; PNWRF:OTCMKTS). Valuera is a Canadian oil and gas company, focused on growing through international mergers and acquisitions in Southeast Asia while taking care of assets with substantial near-term cash flow and mid-term reinvestment opportunities and pursuing a longer-term deep, tight gas play in Turkey.

Regarding the company, Foucaud said, "The name offers very good value given that by YE23 the net cash might be equal to the current market cap."

On February 2, 2023, Auctus released research that age Valeura a target price of CA$4.70, while the price at the time was CA$2.54.

"The shares continue to offer deep value, production and cash flow growth and reserves upside," Foucaud wrote.

According to Reuters, 17.37% of the company's shares are held by institutions. Baillie Gifford & Co. has 16.48%, with 14.36 million shares. Carmignac Gestion has 0.55%, with 0.48 million shares, and Wellington Management Company LLP has 0.30%, with 0.26 million.

2.06% of the company's shares are owned by management and insiders.

Director James McFarland, P.Eng. has 0.63%, with 0.55 million shares. Director Dr. Sean Guest has 0.59%, with 0.51 million, and Director Ron Royal, P.Eng. has 0.42%, with 0.37 million shares.

Chairman Dr. Tim Marchant has 0.35%, with 0.30 million shares, and Director Russell Hiscock has 0.07%, with 0.07 million shares.

The rest is in retail.

Valeura Energy has a market cap of CA$202.61 million and trades in the 52-week range between CA$0.42 and CA$3.13.

You can view the company's investor presentation here.

Disclosures for Stephane Foucaud of Auctus Advisors

Southern Energy (“Southern” or the “Company”) is a corporate client of Auctus Advisors LLP (“Auctus”).
Auctus receives, and has received in the past 12 months, compensation for providing corporate broking and/or investment
banking services to the Company, including the publication and dissemination of marketing material from time to time. 

Valeura Energy inc (“Valeura” or the “Company”) is a corporate client of Auctus Advisors LLP (“Auctus”).
Auctus receives, and has received in the past 12 months, compensation for providing corporate broking and/or investment
banking services to the Company, including the publication and dissemination of marketing material from time to time. 

Arrow Exploration Corp. (“Arrow” or the “Company”) is a corporate client of Auctus Advisors LLP (“Auctus”).
Auctus receives, and has received in the past 12 months, compensation for providing corporate broking and/or investment
banking services to the Company, including the publication and dissemination of marketing material from time to time. 

Zephyr Energy plc (“Zephyr” or the “Company”) is a corporate client of Auctus Advisors LLP (“Auctus”).
Auctus receives, and has received in the past 12 months, compensation for providing corporate broking and/or investment
banking services to the Company, including the publication and dissemination of marketing material from time to time. 

MiFID II Disclosures: This document, being paid for by a corporate issuer, is believed by Auctus to be an ‘acceptable minor non-monetary benefit’ as set out in Article 12 (3) of the Commission Delegated Act C(2016) 2031 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. It is produced solely in support of our corporate broking and corporate finance business. Auctus does not offer a secondary execution service in the UK. This note is a marketing communication and NOT independent research. As such, it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and this note is NOT subject to the prohibition on dealing ahead of the dissemination of investment research.

Author: The research analyst who prepared this research report was Stephane Foucaud, a partner of Auctus. Not an offer to buy or sell Under no circumstances is this note to be construed to be an offer to buy or sell or deal in any security and/or derivative instruments. It is not an initiation or an inducement to engage in investment activity under section 21 of the Financial Services and Markets Act 2000.

Note prepared in good faith and in reliance on publicly available information: Comments made in this note have been arrived at in good faith and are based, at least in part, on current public information that Auctus considers reliable, but which it does not represent to be accurate or complete, and it should not be relied on as such. The information, opinions, forecasts and estimates contained in this document are current as of the date of this document and are subject to change without prior notification. No representation or warranty either actual or implied is made as to the accuracy, precision, completeness or correctness of the statements, opinions and judgements contained in this document.

Auctus’ and related interests: The persons who produced this note may be partners, employees and/or associates of Auctus. Auctus and/or its employees and/or partners and associates may or may not hold shares, warrants, options, other derivative instruments or other financial interests in the Company and reserve the right to acquire, hold or dispose of such positions in the future and without prior notification to the Company or any other person. Information purposes only

This document is intended to be for background information purposes only and should be treated as such. This note is furnished on the basis and understanding that Auctus is under no responsibility or liability whatsoever in respect thereof, whether to the Company or any other person.

Investment Risk Warning: The value of any potential investment made in relation to companies mentioned in this document may rise or fall and sums realised may be less than those originally invested. Any reference to past performance should not be construed as being a guide to future performance. Investment in small companies, and especially upstream oil & gas companies, carries a high degree of risk and investment in the companies or commodities mentioned in this document may be affected by related currency variations. Changes in the pricing of related currencies and or commodities mentioned in this document may have an adverse effect on the value, price or income of the investment.

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The information and opinions expressed in this note have been compiled from sources believed to be reliable but, neither Auctus, nor any of its partners, officers, or employees accept liability from any loss arising from the use hereof or makes any representations as to its accuracy and completeness. Any opinions, forecasts or estimates herein constitute a judgement as at the date of this note. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or estimates. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied is made regarding future performance. This information is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company and its subsidiaries. Auctus is not agreeing to nor is it required to update the opinions, forecasts or estimates contained herein.

The value of any securities or financial instruments mentioned in this note can fall as well as rise. Foreign currency denominated securities and financial instruments are subject to fluctuations in exchange rates that may have a positive or adverse effect on the value, price or income of such securities or financial instruments. Certain transactions, including those involving futures, options and other derivative instruments, can give rise to substantial risk and are not suitable for all investors. This note does not have regard to the specific instrument objectives, financial situation and the particular needs of any specific person who may receive this note.

Auctus (or its partners, officers or employees) may, to the extent permitted by law, own or have a position in the securities or financial instruments (including derivative instruments or any other rights pertaining thereto) of the Company or any related or other company referred to herein, and may add to or dispose of any such position or may make a market or act as principle in any transaction in such securities or financial instruments. Partners of Auctus may also be directors of the Company or any other of the companies mentioned in this note. Auctus may, from time to time, provide or solicit investment banking or other financial services to, for or from the Company or any other company referred to herein. Auctus (or its partners, officers or employees) may, to the extent permitted by law, act upon or use the information or opinions presented herein, or research or analysis on which they are based prior to the material being published. 

Disclosures:
1) Katherine DeGilio wrote this article for Streetwise Reports LLC. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.

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