A couple of weeks ago I compiled the ShareTalk Top 20 Stocks Of The Year 2020. It has been a tough year emotionally and otherwise for most of us.
Perhaps rather eerily, the 2010s were the only decade when there was not a major crash in the financial markets – although we came pretty close with the European Sovereign Debt crisis. Instead, barely had the 2010s ended that COVID-19 turned up – as if nature was in on giving us our “once a decade crash.”
To go through the winning shares of the year, and to learn what we should have done with the help of “Harry Hindsight” is not exactly difficult. Most of the stocks of the year in the list were the biggest risers. The real challenge of course, is to come up with the big winners for next year. This is particularly so given how many people are looking to trading and investing now that the Government has put health / death, before wealth. It may be that the obvious play is just to go “opposite” to what we saw in 2020.
Sell pharma, commodities, online, tech, and buy travel, hospitality, bricks and mortar. In many ways it might be best if that were the case. As we know contrarians can do very well. However, with this survey choosing from the small cap space, and attempting to go for growth, the bigger macro plays are left to the fund managers and the greatest experts of all – mainstream media journalists. They will all have their exposure around the turn of the year: the hope here is to do better!
- Ground Floor Situations – this particular stipulation removes the temptation to go for an easy ride and just pick a rehash of the 2020 winners list in the hope they will keep on trucking. One of the worst experiences an investor can have is being left high and try in a perfectly good stock, having been caught on the wrong side of a momentum play. The idea here is not to try and call the upside, but to choose situations where the downside appears limited.
- Under the Radar / Unloved – another way to avoid getting it wrong and beat the herd is to go for companies which are either low profile, or unloved. Indeed, for the later one could substitute the word hated. At least unpopular companies by definition are not trading on pumped up valuations or hope value. The goal is to buy the ugly duckling just before it turns into a swan, something which adds in the old phrase – where there’s muck, there’s brass.
- Clear USP – for any investment there should be a particular catalyst or kicker that gets you to part with your hard earned cash, and then keeps you loyal. In any list of investments one sees of the “greats”, there is always a clear driver, be it a rising commodity price, an ultra cheap valuation, or a company returning to the fold after being out of favour. In other words, the stock has to make you think it is special.
- A Combination of 1,2 and 3: The reality is that a stock you might not be able to resist buying in 2021, or at any other time, will have a mix of the characteristics described in the criteria above. For instance, we could have a stock which used to be very popular – had a great rally, but then fell out of favour as the bulls got burnt. However, the USP may remain the same. It is just about the market finding the right level again. A bombed out former star stock can be just as much as an opportunity as a newbie.
- Dukemount Capital (DKE): Shell Valuation Ahead Of Dealmaking Campaign
There are a few companies in the top 20 for 2021 where we are playing a waiting game. The first of these is Dukemount Capital, where speculation regarding the “next deal” has been in place since the summer and the arrival of new CEO Matt Thompson. Given his contacts in the real estate space, the former barrister is expected to deliver a significant recurring revenue event during 2021, ideally by the end of the first quarter. Given that the company has just raised fresh capital to facilitate long dated deal such as a sale and leaseback or project construction and management, bulls of the shares have their finger on the trigger. In terms of the value perspective, given the market cap at £3m and effectively just a “shell” valuation, the risk / reward here seems attractive, the waiting game notwithstanding.
- Lansdowne Oil & Gas (LOGP): The Barryroe Bond
We have another “waiting game” opportunity here at Lansdowne Oil & Gas, where the hope is the multi year story of the Barryroe oil and gas field offshore Cork, Ireland, should soon reach its denouement. Having already been kicked and punched by the slings and arrows of the Green Lobby, red tape and multiple parties being involved, shareholders in Lansdowne, as well as Providence (PVR) and San Leon Energy (SLE), are all waiting for a decent conclusion. This optimism took a dent at the end of November when the “signed farm-out agreement” turned out it was missing the bond financing requirement to get the show on the road. However, given the way that the SpotOn consortium should have deep enough pockets and / or rich enough friends to find sub £100m financing against a rising oil price, a happy end to this painfully long affair should be in sight for 2021. Given that Lansdowne shares are trading below their enterprise value and have flushed out carpet baggers in what was a very crowded trade ahead of the farm-out news, even the whiff of a bond deal should lead to a decent reaction in the stock.
- DeepMatter (DMTR): Blue Chip Clients
One of the things this survey has done is to look at the winners of 2020 and then find analogous, and cheaper companies earlier in their life cycle. In the case of DeepMatter we have a company in the digitising chemistry space, which has started to grow its revenue pipeline and hence validate its IP via collaborations with the likes of AstraZeneca. In terms of the fundamental metrics here, the company raised £2.1m in July 2020, enough to last until at least 2023, with £4m in the bank as of August. With this backing the goal of the company is to create a shared data cloud with a platform which enables chemists from anywhere in the world to share details of their experiments in real time. This saves time and money for the scientists and also the organisations they work for. Apart from Astra, Glaxo, Novartis, BASF and Cancer Research are clients of DeepMatter. If your clients are blue chip, it rather makes you as a company blue chip by association. The founder Professor Lee Cronin has recently added to his shareholding, with respected investor Richard Griffiths also on the register at 8.9%.
- Tiziana Life Sciences (TILS): Back To Pre-Covid-19 Levels
There are a couple of stocks in this survey which are far from under the radar, and indeed, have already had their day in the sun. The first is Tiziana Life Sciences, which for one day last summer was not only a highlight in the UK, but also the second most traded stock in the US. This may have partly been due to over enthusiastic “Robinhood” investors confusing the company’s ticker code with that of Tesla, but the point is made. There are perhaps a couple of reasons why the monoclonal antibody specialist should have seen its shares fall back from a 2020 peak of 300p in July to sub 80p in December. The first is the spin-off of its Accustem breast cancer diagnostic arm, and the second a general decline in so called “COVID-19” plays in the wake of the arrival of vaccines in early November. However, COVID-19 makes up only 15% of the Tiziana offering, and with founder Gabriel Cerrone recently adding to his already significant holding below 90p there is clearly value at current levels. Indeed, the latest announcement of a move off AIM to the main market could be the pathway to a decent recovery for a company whose portfolio remains well ahead of the pack. Tiziana has also been backed up by a pre-Christmas initiation of the shares by US broker B. Riley, with an $8 target versus current levels near $2.5.
- Tiger Royalties (TIR): The Greatland Gold Connection
Given the message in at the top of this selection for next year that focusing on the ground floor opportunities can intuitively pay off – it did for the likes of Eurasia (EUA), Greatland Gold (GGP) and Novacyte (NYCT), looking at a company like Tiger Royalties has a certain degree of logic. By ground floor we are referring to not just market cap, the position of the share price historically, but also the life cycle of the company. Life cycle can mean early, in the wake of the IPO, or early in terms of strategy and management coming to the table. Here at Tiger Royalities we have a very good illustration of a market cap barely over the £1m. Indeed, it is a company in a hot part of a hot sector – “capitalising on early entry level in mineral projects, and adding technical and management expertise.” So we have a ground floor opportunity in an entry level mining investor. This may have been the draw for the latest board appointment, Alex Borelli, Non Executive Chairman of Greatland Gold – a £1bn market cap company. On this basis one would imagine 2021 will be an eventful one at Tiger Royalties.
- NQ Minerals (NQM): Ultra Cheap Rating
There are plenty of plus points as far as far as NQ Minerals are concerned. The two major ones are that we are talking gold and we are talking Australia. In many ways one does not need to know much more given the way that many of the best stock risers of 2020 have been those who combined these two fundamental aspects. But NQ Minerals has even more, in the form of venture capitalist Walter Doyle and serial entrepreneur / geologist David Lenigas as Chairman. NQ Minerals is a producing multi project mining group, with star assets being the Beaconsfield and Hellyer mines. The three drivers, among many for NQ for 2021 have been the benefits of Lenigas’s moves to reorganise the debt facilities to much cheap coupons, broker expectations of a £22m EBITDA for next year, and the promise of an imminent move to a Tier 1 stock exchange. Considering NQ Minerals market cap is currently just £23m, it is trading on a super cheap multiple. One would look forward to the move from the current Aquis Exchange junior market to boost liquidity and profile, over and above the benefits of the ongoing bull run in the commodities space.
- Mustang Energy (MUST): Set To Run Free
For those looking for “off the radar” then Mustang Energy has to be a stock that fits the bill. On a more intriguing note it could be said that the company, which is officially “ a Special Purpose Acquisition Company (SPAC) listed on the Standard List of the Main Market of the London Stock would appear to have been set up for those looking for an entry level play in which the downside by definition is limited, and the upside potentially significant. Of course, SPACs have been the new rock and roll in the US, and for this reason buccaneer investors this side of the pond are likely to be interested. The company has said that initial focus will be acquiring projects that are capable of generating positive cash flow within 12 months of acquisition in low-risk, proven on shore oil and gas properties. With a market cap close to £1m and a couple of TR1s already announced just before Christmas it would appear that there is interest in this company. Having the experience at Mustang of resources sector investor Peter Wale as a NED will be a plus to regular followers of the London small caps space.
- Okyo (OKYO): Dry-Eye And Chronic Pain Blockbuster Pipeline
Dry eye specialist Okyo has the plus point of originating from the same management team as Tiziana Life Sciences (TILS) one of the highlight stocks of 2020 on the AIM market. In the case of Okyo we saw a strong rally from March lows under 1p to 18p plus in August. While the stock’s current price around 7p is nothing to be ashamed of, it can be argued that going into 2021 we have a company whose valuation is back in ground floor territory. This is especially the case given the evidence provided at the end of November in the company’s half year report. In this Okyo was revealed to have £5.8m in the bank, enough to complete studies of Chemerin for dry eye by Q1 2021, as well as studies and validation of Proof of Concept for Bam-8 for the treatment of ocular and chronic pain. All of this means that backers of the stock have plenty to look forward to relatively soon in 2021. The reward is also that in both of the key areas of dry eye and non-opioid pain treatment, Okyo would have potentially world beating products, something which the present market cap of the company at £50m certainly does not reflect. Indeed, any blockbuster drug is priced in hundreds of millions or billions in the current red-hot pharma / biotech space.
- Brandshield Systems (BRSD): A Cybersecurity Hero
A decent chunk of the top 20 for 2021 has comprised of stocks trading in the immediate aftermath of their coming to market, and after the reverse takeover by the company of Two Shields, it can be said that we are looking at a “fresh” situation. Certainly, the provider of cybersecurity solutions from brand protection to online threat hunting has had both the gift and skill of timing in terms of its arrival to the AIM market. In just a few weeks it had made a steady start in terms of trading at a premium to its 20p a share issue price. This along with their only being just over 100m shares in issues suggests that Brandshield will enjoy a tight market, and according to early indications, because of its specialist niche, could attract professional and institutional investors. It has been well documented how the arrival of COIVID-19 has meant that online threats have ballooned, and therefore corporates are being forced to seek cybersolutions to counteract this new battleground. Perhaps the USP with Branshield is not only its brand protection ability, but also the fact that unlike many competitors it already has blue chip clients in place. This consists both of Fortune 500 and FTSE 100 companies. With a market capitalisation of just over £20m it can be said that Brandshield Systems is still rated at a very modest level, the successful RTO notwithstanding.
- Tirupati Graphite (TGR): Great Timing For Graphite And Graphene
Having been waiting in the wings for an extended period, it would appear that the result of the long gestation ahead of a main board listing on the London Stock Exchange has been perfect timing for Tirupati Graphite. Not only has the buoyant EV market shone a light on this vertically integrated graphite producer, we are now far enough down the line to realise that graphene will be a wonder material to boot. Therefore, we have already seen the “priced to fly” 45p a share float price easily exceeding in the first week of trading. This was not surprising given the way that the shares were listed at a 90% discount to the NAV of the company and less than a third of the risked valuation. With a new flame retardant launched and a contract for this in India, just days after being listed, it is clear 2021 is going to see plenty of newsflow and an ongoing re-rate for Tirupati Graphite shares.
- Riverfort (RGO): A Small Cap Investor And A Dividend Play
Under the radar / unloved, certainly sums up the ongoing attitude towards investing group Riverfort. This is despite the way that its preferred small cap space, and recent investments in gold have hit the zeitgeist for 2020. Indeed, it could be said that Riverfort finds the kind of small cap bottom fishing situations that most retail investors are attracted to. The difference is that it does the due diligence, finds the opportunities, and constructs the deals, “so you don’t have to.” As if to underline how well it has been doing of late Riverfort announced a whopping 7.5% gross yield for the financial year ending 31 December 2020. With the shares even now trading nearly a third below their NAV, receiving a payout while we await a re-rate for the company appears to be a comfortable position to be in for 2021. This also means that even if there is no quick re-rate, shareholders are well looked after.
- Oracle Power (ORCP): More Than Just The LOI
The story of the Thar Block VI Project and Oracle Power seems as old as the hills, especially with regard to the legendary LOI (Letter of Intent) from the Pakistan Government to green light the project. Fortunately for Oracle shareholders, PM Imran Khan needs to show that he has / is doing something constructive with his time in office, rather than merely being in office. It would also appear that getting on the Green bandwagon is a good way of doing this. Therefore, backed by acute energy shortages it could / should very well be the case that 2021 is the year when Oracle gets over the line on Thar. That said, the best kicker here is arguably the start of the company diversifying into a general mining development group, and to this end the acquisition of two highly prospective gold projects in Western Australia could be the start of Oracle being as sought after as some of the other Australia focused winners of 2020 such as Wishbone Gold (WSBN) and Gunsynd (GUN).
- Bidstack (BIDS): On Track To Exceed Expectations
It is still the case that when push comes to shove, the junior end of the London stock market remains most comfortable with resources plays. This is said even in the wake of a year in which biotech, pharma and tech stocks have outperformed exceptionally. One of the new economy plays which has still to have its days in the sun, despite improving fundamentals driven by the pandemic is in-game advertising platform Bidstack. Here It would appear the delay in stock market appreciation may actually work in the company’s favour, given the way that the share price is still relatively close to the “ground floor” valuation zone. Indeed, given the way that Bidstack used one of the stock market’s best phrases in its latest trading update. It said that it is on track to beat market expectations, due to a significant increase in advertiser demand in the second half of 2020. The implication here is that in the wake of the arrival of COVID-19, advertising agencies, after losing traction in existing areas, have beaten a path to the growth area of video gaming. Given that shares of Bidstack were trading as high as 35p in 2019, and flatlined for 2020, well under 10p, it may be correct to assume that the new year could be the starting gun for a fresh appraisal of the company’s business model.
- Pires (PIRI): Star Tech Sector Acquisitions
2020 was the year of online and of tech investing, as the pandemic took its grip on the stock market and beyond. Alas, in the UK we do not yet have the enthusiasm or perhaps the appetite or understanding to fully back new economy plays, apart from say, the online retailers. However, the tide is turning, and is likely to continue to do so the longer the pandemic lasts and the more damage it does to traditional sectors. Shares of tech investor Pires have doubled off their lows of 2020 in the wake of careful and clever investments in some of the hottest parts of the technology ecosystem, With the continued backing of high-profile investors on the shareholder register and support from Sure Valley ventures managing partner and tech investment specialist Barry Downes, one can expect the acquisition of zeitgeist hitting assets to continue. Of late these have included decentralised finance play, Yop, and next generation sports betting platform Low6. The latter is due to IPO in H1 2021, meaning that the runway to a positive liquidity event for Pires is gratifyingly close. While Pires may be described as “under the radar” for now, this state of affairs, and the value disconnect is unlikely to continue for much longer.
- i3 Energy (I3E): Run Up To Dividend Payout
It is no coincidence that we have two “under loved” oil & gas plays next door to each other in the top 20 for 2021. While it is not the function of this list to transform opinions, what can be said is that with both i3 Energy and the company which follows at number five, those who are persuaded to get on board should be well remunerated for doing so. Clearly, in the aftermath of COVID-19 when we saw Crude Oil fall to minus $40 a barrel, confidence in the sector took a knock. However, with Brent around the $50 a barrel level, and making all but the most expensive assets profitable again, it would appear that going against the negative sentiment in the space should pay off well. It helps that i3 Energy’s CEO Majid Shafiq is a seasoned operator, with some 30 years in the space. He has been busy this year, having built a substantial production company with a full cycle E&P portfolio, taking advantage of the weakness and value in the space. Having raised £29m in the summer for its dealmaking, in November i3 confirmed the closing of its transaction to acquire the Canadian assets of Toscana Energy and it said expects to declare and pay its first dividend in the first quarter of 2021. This should provide decent cheer, especially when added to confirmation of 9,400 boepd production in the wake of the Toscana asset acquisition being closed.
- San Leon Energy (SLE): Hefty Broker Price Target
Of course, 2020 was a tough year for most companies in the oil and gas space. But ironically, we have seen more issues for some of the larger players with regard to production cuts and dividend payouts than at the more nimble and specialist plays such as San Leon. It continues to be a massive dividend payer to its shareholders, most notably the near 25% special dividend paid out early in 2020. The cash for this is the result of the company’s ongoing and successful strategy of acquiring equity stakes and lending to world class assets such as OML 18, offshore Nigeria. The concept of lending to such projects at high coupon rates and then having the benefit of their growth and development means that San Leon has flown very much above the clouds during the time of COVID-19 disruption. While the pandemic is clearly going to be an influence on any company currently, San Leon’s income and quality of assets can help it ride through any delays / bumps in the road. Interestingly, the shares are less than half the 59p Panmure Gordon price target – off the back of the broker’s appreciation of San Leon’s lend-invest strategy – hence de-risking exposure in the present environment. Indeed, the only downside so far of this approach seems to be that the stock market does not yet appreciate the value and income creation at San Leon Energy. Therein lies the opportunity for 2021. This certainly appears to be one of those stock market situations where investors – apart from those who fully understand the momentum San Leon is building, continue to look the income delivering gift horse in the mouth.
- Contango (CGO): Making The Right Moves
While we have grown accustomed to companies in 2020 converting themselves miraculously into COVID-19 plays, it may be said that the more logical and switch to make this year has been into the gold / precious metals space. This has worked well for the likes of Wishbone (WSBN), Gunsynd (GUN), Oracle Power (ORCP) and Contango. In the case of Contango its flagship asset was a 70% interest in the Lubu coalfield project in north-western Zimbabwe. This was added to in October by the acquisition of the Garalo Project for gross consideration of US$1M, targeting production scenario of 30,000oz per annum. At the time Contango said that further drilling was expected to expand resource and mine life. This has certainly proved to be the case with the latest news being that it is sitting on a potential gold resource of 1,800,000 oz at average grade of 1g/t, representing a 460% uplift from the previous estimate. There is an additional as yet untested resource potential below the historic 150m drilling depth. Given that Contango is still only an £18m market cap, and the raised £1.8m at the time of buying Garalo, it may very well be the case that once investors stop rubbing their eyes at the resource upgrade they may well decide a positive re-rate is in the offing for Contango.
- Deepverge (DVRG): The Next Open Orphan?
Pharma services group Open Orphan (ORPH) made the grade as the ShareTalk Stock of the Year 2020, and did so by a mile given the criteria of business model, execution, performance and communication. Of course, for 2021 we are mainly focusing on companies that are near to the ground floor, and / or have the greatest potential upside from present levels. On this basis it may be said that Deepverge could very well be 2021’s Open Orphan. Both companies have multi-pronged cutting edge cash generative businesses, having flourished under COVID-19, but will continue to do so should it fade. They also both have charismatic and dynamic management. With Open Orphan it is Cathal Friel, with DeepVerge it is Gerard Brandon, another “force of nature” leader. Highlights at DeepVerge include Labskin, which allows skin-care, health-care, pharmaceutical manufacturers and cosmetic companies to test their products on “human-like” skin. This is not only a practical breakthrough, but an ethical one. The takeover in October of Modern Water shone a light of the need to detect COVID-19 in the water supply, amid general purity concerns. Perhaps best of all though, is that while DeepVerge ticks the boxes of being at the zeitgeist, it is not a jam tomorrow / blue sky company, the AI as a service / toxins, virus, bacteria detection and testing group is very much jam today.
- Mode Global (MODE): Ground Floor Share Price
It is no coincidence that no less than six out of the twenty stocks in this survey are relatively new arrivals to the market. This ties in with the “ground floor” or at least base camp concept, where a stock’s valuation is relatively clear cut, or we have an objective starting point to judge upside / downside. Ideally, new IPOs will head higher from their opening price. In this case of the few that do not do so immediately such as Mode Global, one has to ask why? Its shop window has at least two compelling aspects, first the “digital finance app that allows users to manage their traditional and digital assets all in one place, and earn interest on Bitcoin.” This would be enough in its own right to create a “hit” stock. Mode also diversified its reserves into Bitcoin back in October, benefitting from the crypto rally. But the “business” (B2B) part of Mode is arguably even more exciting with payment processing and marketing services for UK and European businesses to access over 1 billion Chinese consumers via Tencent and Alibaba. Indeed, it was the purchase of its operating subsidiary JGOO, giving it full control of its associated partnerships with Tencent and Alipay, which pulled the Mode share price down. Future plans include open banking-powered payments combined with a loyalty platform. This dip below the 50p placing price should actually be an opportunity as the company with full control of its payment processing is now in a better position than it was when it came to market in October.
- Helium One (HE1): Blowing Bubbles
It is rare that momentum for a hot stock is seen from the professional investors first, and then trickles down to the rest of the market. However, there was a “top down” appreciation of Helium One in the run up and aftermath to joining AIM at the end of 2020. After the over-subscribed placing at 2.84p from the ashes of Attis Oil & Gas, we have seen the shares trade now lower than 3.8p as traders have scrambled for stock. This looks set to continue as speculation grows regarding timelines to production during 2021 with regard to the company’s massive asset in Tanzania, where helium apparently just seeps from the ground. Given the way production once it starts is likely to last for decades, fuelling the Green Revolution, it is not difficult to understand the interest in the stock which only started with a market cap of £14m after raising £6m. It would certainly appear that appetite for Helium One is set to grow over the next 12 months. This therefore appears to be a situation which is essentially ground floor, but where interest has yet to trickle down to the bulk of investors, thereby hinting at considerable further upside. The fact, that this is a company which has few peers means that the prospect of an ongoing re-rate is very much in place.
(The opinions expressed here are those of the author, a columnist for Share Talk.)
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