Excitement brewing at AIM star Thalassa

Just before Christmas we covered a small AIM-listed company providing marine services to big oil companies. Its share price had just shot up to a five-month high, but there was confidence another 38% was there for the taking. Less than six weeks later, target was achieved, but things are happening again and the shares are on the move.

Shares in Thalassa suffered harsh treatment last week, despite beating house broker full-year results estimates at the pre-tax level. Better gross margin performance helped generate adjusted pre-tax profit of $3.6 million, but the shares still fell to a three-month low.

However, having upgraded from 80p in January and 65p the month before, John Cummins, an analyst at house broker WH Ireland, thought they were worth at least 100p, implying upside of well over 50%. Latest activity is justifying that optimism.

"The long-term nature of our current book of business (five-year plus contracts), asset light model and flexible management structure gives us a remarkable competitive advantage, which thankfully our competitors do not share," said chairman Duncan Soukup on 12 April - results day.

"It is, therefore with a certain amount of confidence that we are able to look out thee-to-five-years into the future in the knowledge that we should continue to perform in line or above expectations, as long as we perform to our clients' satisfaction and the price of oil does not collapse for any extended period of time."

And regular Interactive Investor contributor, oil industry analyst Malcolm Graham-Wood, was perplexed by the market's grim reaction to the figures.

"The shares should be up, not down as the operating side of the company has performed very creditably and continues to do so. Top stuff Duncan."

And finally the market has woken up Wednesday, with Thalassa shares up as much as 19% to their highest since the end of February, after Soukup confirmed he's in early-stage talks with a potential buyer of one or both of the firm's subsidiaries - WGP Group and Autonomous Robotics Limited (ARL).

This is all part of Thalassa's strategy to "bridge the gap between [its] current share price and the board's assessment of the intrinsic value of the company's assets", following a 10% drop in the share price since the annual results.

"With WGP holding two long-term [permanent reservoir monitoring (PRM)] contracts over four fields providing good visibility, and positive progress in development continuing at ARL, we believe that there is substantial value in these two businesses," writes Cummins.

"Value also exists in the group's 23.3% stake in [The Local Shopping REIT (LSR)], as illustrated by the most recently reported 43p/share at LSR's full year results in December, in addition to Thalassa's latest reported net cash position of $7.7 million.

"On the back of this announcement, we maintain our 'buy' recommendation and 100p net asset value-based share price target, whilst we estimate the underlying intrinsic individual value of the group's interests combines to generate more than double this valuation."

This is a convincing argument, but investors should understand the risks here. The sale won't happen if the two sides can't agree a price. Thalassa shares are fairly illiquid, too, which means they could move down as quickly as they went as up.

That area just either side of 70p is also hugely significant. Thalassa shares were worth over 300p only three years ago. There could still be plenty of shareholders who bought at around that level and who regret not selling during the good times. It proved stiff resistance in 2015 and has again on a handful of occasions in 2017. It will require some special news to make a break above that stick. Watch this space.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.