Is It Safe To Buy Quindell PLC, Afren Plc And BowLeven PLC?
For investors in Quindell (LSE:QPP) and Afren (LSE:AFR), the present time is one of great uncertainty. Shares in both companies are suspended and it is currently unclear exactly when they will resume trading, with them both experiencing negative news flow in recent months.
In the case of Quindell, an investigation by the financial regulator, the FCA, into the company's communications in recent years prompted Quindell to seek a temporary suspension of its shares on 24 June. Clearly, this is bad news for the company and, while the FCA could find that the company followed all applicable rules, the possibility of a negative outcome is likely to hurt investor sentiment towards the company in the meantime. And, with Quindell also failing to reports its full-year results on-time, it appears as though the situation at the company remains rather less than perfectly smooth.
Of course, Quindell could prove to be a strong long term performer. It has new board members and is apparently seeking to become a specialised telematics and insurance technology business. However, the challenges it faces could hold back investor sentiment and, even if its shares do resume trading in the near future, prudent investors may wish to watch, rather than buy - at least until the outlook appears steadier for Quindell.
Meanwhile, Afren's shares have been suspended since 15 July amid concern surrounding its financial standing. In fact, Afren admitted that it was unable to accurately assess its financial position and that its near-term production levels would be materially below previous guidance. This was despite a recent restructuring plan being agreed with the company's creditors and, while Afren is said to be further engaging with them in the hope of raising additional capital, its future seems to be rather bleak.
Of course, the company has been hit by a falling oil price and, while its asset base has always been relatively impressive, it appears as though a balance sheet containing too much debt may lead to its downfall. And, with interest rates only likely to go one way over the medium to long term and the oil price slipping back below $50 per barrel in recent weeks, even if its shares resume trading there appear to be far better options within the oil sector.
One stock that is not suspended at the present time and which is available for purchase is BowLeven (LSE:BLVN). Unlike Quindell and Afren, its recent news flow has been positive, with the company announcing the completion of drilling in the Zingana exploration well in Cameroon and reporting that it has found hydrocarbons in the reservoirs that were targeted. This is highly encouraging and caused a short term boost in BowLeven's share price, although it remains 15% down since the turn of the year - largely due to a weak oil price.
Looking ahead, further positive news flow could lie ahead, with BowLeven set to commence drilling on the second well in the programme. And, with its shares currently trading on a price to book ratio of just 0.22, it appears to offer a wide margin of safety and considerable capital gain potential. Certainly, it is likely to be volatile, but could be worth buying for the long term.
Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.