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Heritage Oil (HOIL 337p) gushed 26¾p to 338p following a positive drilling update from the Kurdistan region of Iraq. It is the first-ever well to be drilled on the Miran licence in the region and testing is anticipated to take up to one month to complete’ (thisismoney.co.uk, market report 25 march 2009)

Oman holdings sold for $28m (Company announcement today April 8th) “This transaction demonstrates Heritage’s strategy of realising value for shareholders within the portfolio” Tony Buckingham, CEO.

In the last couple of weeks we’ve had a positive drilling report, and disposals realising value to be reinvested in core assets, yet Heritage Oil shares are trading at 337p, down a couple of % today. News in the price? Time to take profits?

Heritage Oil are up 33% absolute, and up 79% relative to the FTSE 250 index since our comment on September 21st 2008.

We said then that we had noticed two non exec directors Michael Hibberd and Gregory Turnbull buying 50,000 shares each on 5th September at 215p and 212p respectively.

Hibberd followed this up with a further purchase of 75,000 shares at 182p on September 16th, taking his holding to 300,000 shares. Hibberd must have believed Heritage Oil shares to offer value to invest around 250,000 pounds and almost double his holding.

For full comments on Heritage Oil see September 21st :  ‘Non execs build equity positions in Heritage Oil (HOIL)’

I’m happy to take profits here in light of the positive news, and the stalling share price.

View on Heritage Oil : Neutral

Caveats:

Cazenove comment as reported on FT Alphaville March 25th: ‘At 311p, Heritage is trading at a 23% premium to our core NAV. At these levels, a certain amount of bid speculation and exploration success is priced in. However, given the potential upside from a successful flow test in Kurdistan and the company’s takeover appeal, we remain with our OUTPERFORM recommendation’

Evolution comment as reported by FT Alphaville  on the same day: ‘VALUATION AND RECOMMENDATION – On 3rd March we wrote that we thought Kurdistan was a free option in Heritage’s share price with little downside risk if exploration failed. The downside appears to have been eliminated. Our old target price of 400p included a risked upside of 123p for the Miran structure based on 500m boe of recoverable reserves. Following today’s news we are raising our target price to 500p to reflect the success and the potential upside to our reserves assumption’

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