North Sea oil firm stock looks vulnerable

By Graeme Dickson
Updated: 12:20 EDT, 11 May 2011

Anyone invested in North Sea AIM oil explorers Encore (EO.) or Xcite Energy (XEL) will have likely experienced a bloody nose over the last few weeks after the former announced flaky exploration results while the latter was bruised by a reserves statement.

You might wonder how the rest of the North Sea E&P sector is holding up, given the poor sentiment.

One stock that operates in this area and might be vulnerable to a softening share price is Premier Oil (PMO):

Premier Oil last year had about £445 million of its revenues derived from the North Sea (& West Africa) out of total revenues of £766 million.

Given that North Sea Oil supplementary tax has risen from 20 per cent to 32 per cent, profits are likely to be impacted, albeit the hit will be mitigated by Premier's world-wide geographical spread.

Earnings per share for the company is set to soar from an estimated 120p in 2011 to 309p in 2012, placing Premier on a forecast price to earnings ratio of 6.2, which is quite ompelling if the company can deliver.

Nonetheless, the dead-cross in the stock is possibly a leading indicator to suggest that sentiment in North Sea oil related stocks, regardless of Premier's merits, is not all good.

If the shares are to return to a level where it could become attractive then 1600p looks a possibility, with 1300p as an extremity (where the 200 week exponential moving average sits. Expect resistance at 2120p.

Bear in mind that on 23 May, the company is likely to approve a four for one share split, so ensure you make necessary adjustments to your targets and stops should it take place.

Update

QinetiQ (QQ.) - suggested to sell at 121.1p, the shares closed at 116.8p. Keep the stop at 135p while targeting 95-100p.

Inchcape (INCH) – suggested to sell at 358.9p, the stock closed yesterday at 371.5p. Sit tight for now – if it closes above 415p, cut the position.

Smith & Nephew (SN.) – suggested to sell at 676.5p, the stock closed yesterday at 687.5p – the stock has perked up since it issued its Q1 results. Nonetheless keep the stop based on a close above 700p.

Carpetright (CPR) – suggested to sell at 636p, the stock closed at 669,5p after what appears to be a dead-cat bounce. Hold for now.

ITV (ITV)- suggested to sell at 78.05p last week, it closed yesterday at 75.9p. If the stock closes above 78p, cut the position.

Aquarius Platinum (AQP) – suggested to sell at 345.9p, the stock closed above the stop of 352p and should have been closed.

Aveva (AVV) – suggested to sell at 1591p, the stock closed yesterday at 1643p. Keep the stop at 1675p.

The writer does not hold any shares or derivatives in the above mentioned companies. The material for this report comes from Sharescope.