The rapture that has greeted Xcite Energy’s (XEL) announcement this morning is not too surprising. Release an RNS mentioning Shell and Statoil in the headline and this is bound to get a lot of people salivating at the prospect of that long waited for, yet ever illusive, takeover/farm in. The 20% jump in Xcite’s share price, in the first hour or so of trading, confirms the appetite that still remains for this recently beleaguered stock. But is this enthusiasm misplaced?
I think it might be.
Before Xcite’s shareholders start jumping all over me, I want to remind them I am pretty positive towards this company. Faced with the realities of the persistently difficult financing environment, Xcite’s board embarked on an innovative approach to commercialising Bentley. Unable to secure a farm-in, sufficient financing or a takeover, Xcite’s directors decided to adopt a piecemeal plan, bringing in partners to do specific jobs. I’ve used this quote several times before, but it succinctly describes what Xcite’s board intends;
“Discussions with industry service partners are progressing and, while a number of farm-out discussions continue, progress is slow, and our emphasis is now moving in favour of a development partner solution which we can influence and direct.”
When Xcite announced this new approach, together with its final results at the end of March, shareholders rushed for the exit. Exasperated at the perceived never ending delays, most people seemed to miss that Xcite’s board’s plan offered the prospect of genuine progress, albeit at a steady pace. The stock tumbled and I suggested it was one to average into sub 66p.
I won’t yet claim this call as a victory, as I still believe Xcite is some way short of full value being realised, but today’s jump is certainly a step in the right direction.
Unfortunately I don’t believe it is the leap that many others are claiming.
The cold reality is that if Shell or Statoil were serious about buying Bentley (partially or entirely) they surely would have moved already?
Perhaps I am giving too much credence to corporate dynamism, but my view remains that Bentley’s development is on the slow burn. Although Xcite’s recent RNS all indicate progress, there is still a long road ahead. The crucial elements that are missing from the company’s announcements are deadlines.
It is probable that Xcite’s board are cautious about making public a timeframe, given past experience. Even so, without this, I’d be more inclined to take profits today and wait for another drift in the share price, before averaging in further.
It is possible that improving sentiment could drive Xcite’s stock higher, but if you haven’t already bought in, buying on this basis today seems awfully risky. |
