The Top 20 For 2022: Of course, at this time of the year, everyone and their mother deliver their list for the winners of the New Year, as I have in recent years. However, I wanted to go from a slightly different angle.
By Zak Mir
In some weeks I interview as many as 10 CEOs and many several times over the course of the year. One of the generally accepted rules of successful stock market investing is that you are investing in management, even more than the business model. It has to be said that the vantage point of being an interviewer can be the box seat as far as judging companies. For instance, it is rare an outperforming company is headed up by someone who does not impress either in an interview, face to face, or via their track record. Most of the 20 stocks included for 2022 are companies where the management are outstanding, and where there is not necessarily the case, the valuation or sentiment towards the group has sunk to “ridiculous” levels.
Finally, the selection is in the small-cap/microcap area – Elephants Don’t Gallop, remains the mantra. My influence has been and continues to be Gervais Williams of Premier Miton, and he continues to be an outstanding example in this space.
9. East Imperial (EISB): 10p Target 25p
To say a company is going to be “the next” this or that is normally a punchy thing to say. However, in the case of premium beverages group East Imperial, this looks as though it is more than merited. It came to market in July with a market cap of £30m, which compares to Fevertree (FEVR), the premium drink mixers giant at £3bn. The latter made its way to being a giant killer in the space, largely through the genius of its distribution. What could be the big win for East Imperial is to go one step ahead of Fevertree, and really crack the American market, and this is what bulls of the shares are backing it to do. What has been interesting is that since listing in July we have gone through a requisition, something which beefed up the board. The new management experience which is blue chip via New Look and M&S, now puts everything in place for the company to achieve a rollout as good or better than Fevertree has achieved. At the current modest market cap, the market has not factored in more than a fraction of the group’s potential.
8. i3 Energy (I3E): 13p Target 30p
As has been stated with respect to United Oil and Gas, and something which is applicable to Canadian Overseas in this sector, one of the most difficult things to do on the stock market is to change market perception from regarding a company as a micro / small cap, to being a serious mid cap situation with blue chip potential. A company which has managed to rise above the small cap clouds in 2021 has been i3 energy, via its with assets and operations in the UK and Canada. What has been the secret of the company’s transformation? Perhaps not surprisingly, it can be said that it has been a mix of multiple factors. I3 was spot on in hoovering up bargain basement assets in the wake of the pandemic, and perhaps more importantly proved since then that it has the operational skills and capacity to deliver for shareholders on these deals. This point is underlined by the introduction of the dividend, another key aspect required for a company to show its blue chip credentials.
Of course, CEO Majid Shafiq has decades of sector experience to follow through on strategy. But nevertheless, this month’s 2022 Canadian Capital Programme and dividend guidance, underlines that there is going to be no let up in the company’s momentum. Indeed, the company’s investor relations has been absolutely spot on: an example for others to follow. On this basis the present stock market valuation of £150m credits very little of what has been achieved here, and what can be expected over the next year. The shares were up nearly 150% in 2021, one would expect at least a similar rise for 2022, especially while strong oil prices continue to favour the group.
7. Tirupati Graphite (TGR): 85p Target 160p
As stated with reference to Cizzle (CIZ), a lot of how a company is regarded on the stock market, at least initially, is how the shares move in the immediate aftermath of the IPO. This has been highlighted in spades with the recent blockbuster float of Bens Creek (BEN). The shares have more than tripled in short order, and there are a lot of happy punters around. Part of what happens in the early stages is dependent on stock market conditions at the time. But common sense dictates that if a company is priced to fly from the get go, the initial share price trajectory is bound to be positive. This was the case with Tirupati, which was listed at near a quarter of its risked valuation, with the stock nearly quadrupling from the 40p zone by the end of H1 2021.
Since then there has been a consolidation, but the green light on a fresh bull run should be on its way given last month’s announcement of the start of commercial production at Vatomina. 2022 is set to move the fundamental dial at TGR: current Madagascar production is 12,000 tpa, expected to reach 30,000 tpa by the middle of next year, and then targets to hit 84,000 tpa by the end of 2024. Production is set to be the near term driver for the stock, with aspects such as its Aluminium Composite and potential tie ins with blue chip companies thrown in the mix as icing on the cake to boost sentiment towards the company going forward. Finally, like many other companies in this list, the passion of the management, in this case from Executive Chairman Shishir Poddar, who is in many ways, Mr Graphite, should never be under-estimated.
6. Caracal Gold (GCAT): 1.07p Target 2p
The idea of pricing a company to fly on listing is a simple, but every effective one which should is perhaps not appreciated or acted upon as much as it should be on the stock market. Enter Caracal Gold, which raised £5.5m in August. The premise then was that we are looking at a company which was set to “rapidly increase production to +50,000oz p.a. and build a JORC compliant resource base of +3Moz within 12-18 months.” All of this was initially given a valuation of less than £15m. It was therefore hardly surprising that the stock rose from below 1p to 1.85p in just 6 weeks. The premise remains the same going into 2022, only with the inflation outlook / Gold price looking far more bullish, and the bumper December announcement in the bag too.
This revealed agreements to acquire a 100% interest in the advanced Nyakafuru Gold Project and secure a 75% interest in the Simba Gold Project in Tanzania. In the wake of this news GCAT now has attributable gold resources of over 1.5Mozs, with 26 granted mining and prospecting licenses and 5 existing license applications. This is plenty to be getting on with for the new year, and with the shares still at a basement level market cap, anyone serious about prospects for Gold is likely to be running the rule over Caracal.
5. Galileo (GLR): 0.98p Target 1.5p
In terms of companies in the Colin Bird stable of London listed companies to choose from, one is certainly spoiled for choice. What continues to be somewhat baffling is that even though Mr Bird has brought us the £400m market cap metals processing cash machine Jubilee Metals (JLP), the stock market is insistent on taking each of his listings on their own merit, and behaves as if each one is his first company to list. However, in such churlishness lies the opportunity, even though “been there, done that” should be the mantra. In Hollywood you are only as good as your last film, one the London market you are only valued on your next big winner. It will be interesting to see how the Xtract Resources (XTR) 2m tonnes of contained Copper story pans out – presumably that will be one where seeing will be believing?
In terms of Galileo Resources though, we are looking at a situation where once again the market cap of close to £10m will be contrasted sharply against the multiple positive developments / newsflow. Indeed, 2021 ended on a high note with a packed December. The first was an option agreement gives Galileo the right to earn an initial 51% interest in the Shinganda copper-gold project in central Zambia, by just spending $0.5m on exploration and evaluation over two years. But this was just the hors d’oeuvre, in the sense that the month closed with a JV regarding the Luansobe Copper Project, Zambia, which will give GLR a 75% stake for just $400,000. The nearby Mufulira mine which has produced well over 9Mt of copper metal during its operations, while historical reports suggest the potential for very significant copper resources of up to 20Mt @ 2.51% Cu at Luansobe. It can therefore be said that Colin Bird has delivered a potentially company making pair of deals, and once again with the company valuation at the ground floor, the prospects for the coming year appear very favourable.
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