Premier African Minerals, Harland &Wolff, Baron Oil, and Avacta could constitute 4 high-risk plays for investors with nerves of steel.
The best FTSE AIM shares are often quoted as those experiencing predictable growth that will allow them to eventually see promotion into the premium FTSE 250 segment of the London Stock Exchange.
However, with taxes rising, spending falling, and a severe recession incoming, the investment calculus is changing. Defensive FTSE AIM companies with predictable returns are unlikely to see investors beat the UK’s sky-high 10.1% CPI inflation; and for those with a high-risk appetite, the returns of riskier companies can then appear relatively outsized.
Of course, one way to mitigate high risk is to diversify for a wide exposure across multiple sectors. And regular readers will have seen these companies covered in detail over the past few months.
1. Baron Oil (LON: BOIL)
Currently the most highly traded stock on FTSE AIM, BOIL shares are waiting for a catalyst to rocket higher. The company owns a 32% interest in the UK P2478 licence at Inner Moray Firth, and a 75% interest in the Timor-Leste-based (East Timor) Chuditch product sharing contract (PSC).
Internal 3D seismic data surveys show that the Chuditch project has a best-case recoverable resource of 3.6 trillion cubic feet of gas, equivalent to the United States’ entire gas stockpile. This is an incredible resource for a relatively tiny company with just a £22 million market cap.
Having conducted a share placing recently, the stock is now significantly de-risked. Consultancy ERCE has been contracted to independently verify the internal survey, with a view to selling the asset to one of the global oil majors. This could send BOIL shares to new highs in 2023.
2. Harland & Wolff (LON: HARL)
Harland & Wolff shares have already experienced their catalyst, as the legacy shipbuilder has received ‘preferred bidder’ status under the Team Resolute Umbrella in partnership with Navantia, to help deliver a £1.6 billion government contract for the UK’s Fleet Solid Support Programme.
HARL shares are now up 300% since the month started, and its £41 million market cap could be about to undergo a fundamental re-rate. In addition to a sizeable chunk of the £1.6 billion, it’s also seeing a £77 million investment from Navantia into its shipyards, and has a huge gas storage project set to open soon at Islandmagee, in addition to multiple other revenue streams.
Encouragingly, its CEO has also been buying up shares at these elevated prices.
However, while the FSS contract is unlikely to be retracted, it is not yet set in stone. Politically, some have challenged the fairness of apportioning some of the contract to a non-British company as the UK heads into recession, despite the expertise Navantia will bring in.
3. Premier African Minerals (PREM)
Premier African Minerals has a 100% interest in the gigantic world-class Zulu Lithium and Tantalum Project in Zimbabwe, which could be one of the best quality lithium reserves in the world.
The silvery alkali metal is now trading at a near-record high of 591,500Yuan/tonne in China, and could be set to rise further. Suzhou TA&A Ultra Clean Technology Company has signed an offtake deal with PREM, after injecting $35 million into its pilot plant. And with the pilot set to start producing in Q1 2023, the first shipment is planned for March next year. The plan is to ramp up to 50,000 tonnes of spodumene of initial annual production as fast as possible.
Given Suzhou’s 13.38% strategic shareholding and other previous investments, there is some speculation that a full buyout could occur once production commences. While penny lithium explorers are a high-risk investment, the £126 million market cap could make PREM seriously undervalued for high-risk investors.
4. Avacta (LON: AVCT)
Avacta is a biotech stock with heaps of potential, both through its long-term strategy, but also through its proprietary Affimer and pre|CISION platforms. The company is in the process of acquiring Launch Diagnostics, and also boasts partnerships with LG Chem, DaeWoong Pharmaceutical, Point BioPharma, Moderna, OncoSec, and Tufts.
Its Affimer platform has been designed as a superior alternative to antibodies, while pre|CISION is a targeted chemotherapy platform designed to only activate within fibroblast activation protein (FAP) rich tumour tissue, which limits the systemic exposure that causes damage to the body’s healthy tissue.
Avacta is now conducting a potentially revolutionary first-in-human, dose-escalating, phase I trial of its lead pre|CISION, FAP-activated AVA6000 drug, based on the generic chemotherapy doxorubicin.
AVA6000 has been granted Orphan Drug Designation by the US’s FDA, and could be a genuine game-changer for cancer treatment if its initial performance is anything to go by. Of course, biotech trials often throw up unexpected curveballs, both good and bad.
This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.
Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.