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Analysing Triple Threats on the ASX
What is a Triple Threat?
Definition - A person who is skilled in three different areas. When the skills are combined, the person becomes exceptional.
Triple Threats on the ASX
The same principles also apply when looking at ASX companies. What exceptional qualities does the company have at both the business and corporate level? How do we find a balance so we can uncover unrecognised value/risks?
Our next Triple Threat analysis
Melbana Energy Limited / ASX:MAY
For this week, we are taking a look at a rather unique company. The company is engaged in Cuban oil and gas exploration, which following several years of preparation work, has progressed to development. The project, called Block 9, was a risky, yet large target. The project was drilled for the first time in Q1 2022 yet due to design issues, could not be fully tested. Fortunately, in Q3 CY23, the company was able to drill a second well which successfully demonstrated moveable oil across 2 of the 3 target zones.
Oil and gas exploration is a highly risky and expensive operation. Although Melbana's journey has finally showed glimmers of hope, their journey for shareholders hasn't all been smooth sailing.
Let's dive in and see whether Melbana Energy (ASX:MAY) is a rare Triple Threat.
For this week, we are taking a look at a rather unique company. The company is engaged in Cuban oil and gas exploration, which following several years of preparation work, has progressed to development. The project, called Block 9, was a risky, yet large target. The project was drilled for the first time in Q1 2022 yet due to design issues, could not be fully tested. Fortunately, in Q3 CY23, the company was able to drill a second well which successfully demonstrated moveable oil across 2 of the 3 target zones.
Oil and gas exploration is a highly risky and expensive operation. Although Melbana's journey has finally showed glimmers of hope, their journey for shareholders hasn't all been smooth sailing.
Let's dive in and see whether Melbana Energy (ASX:MAY) is a rare Triple Threat.
Director on-market buying
Oil and gas exploration is a risky and slow process. Having directors who have committed their own cash to buy and hold shares alongside other shareholders is usually a great sign that insiders expect further share price appreciation.
On the other hand, if we observe disproportionately large selling by directors, it may be the case that insiders expect limited future share price appreciation or heightened risk in the near future. Although it is usually understandable for directors to sell stock and realize a profit, as shareholders, we must be cautious about the signal this can give.
Melbana has had a volatile journey in the last few years but achieved an impressive share price spike in 2022. This has created a windfall for early investors and most directors via shares, performance rights, or options. Let's analyze how directors have been trading on the market during the last three-year period.
Andrew Purcell
On the other hand, if we observe disproportionately large selling by directors, it may be the case that insiders expect limited future share price appreciation or heightened risk in the near future. Although it is usually understandable for directors to sell stock and realize a profit, as shareholders, we must be cautious about the signal this can give.
Melbana has had a volatile journey in the last few years but achieved an impressive share price spike in 2022. This has created a windfall for early investors and most directors via shares, performance rights, or options. Let's analyze how directors have been trading on the market during the last three-year period.
Andrew Purcell
- 9 May 2023: On market sale of 10,000,000 shares for $872,439 (link)
- 5 Dec 2022: On market buy of 1,189,166 shares for $49,944.97 (link)
- 18 May 2022: On market sale of 10,000,000 shares for $965,293.08 (link)
- 18 May 2022: Converted 250,000 options to shares for $8,750 (link)
- 3 May 2022: On market purchase of 1,116,122 shares for $99,999.68 (link)
- 10 Sep 2021: Purchase of 500,000 shares in EO for $10,000 (link)
- 28 May 2021: Off market sale of 148,975,180 shares for $2,681,533.24 (link)
Peter Stickland
- 9 May 2023: On market sale of 2,200,000 shares for $200,900 (link)
- 5 Dec 2022: On market purchase of 600,000 shares for $25,200 (link)
- 17 May 2022: On market sale of 5,000,000 shares for $489,100 (link)
- 17 May 2022: Converted 1,276,713 options to shares for $44,684.96 (link)
- 10 Sep 2021: Purchase of 2,553,427 shares in EO for $51,068.54 (link)
Peter Stickland
- 5 Dec 2022: On market buy of 1,000,000 shares for $41,000 (link)
- 24 May 2022: On market sale of 2,576,922 shares for $257,692.20 (link)
- 15 Mar 2022: Converted 492,307 options to shares for $17,230.75 (link)
- 10 Sep 2021: Purchase of 984,615 shares in EO for $19,692.30 (link)
- 4 Jun 2021: On market buy of 1,000,000 shares for $21,000 (link)
As we can see, Melbana's directors have made numerous transactions. Although there have been a few purchases of stock, there have been significantly more shares sold throughout the last three years. This includes a large off-market sale by executive chairman Andrew Purcell. In aggregate, there have been:
- 178,752,102 shares sold at an average price of $0.0306 for $5,466,977.52
- 10,962,350 shares purchased at an average price of $0.0354 for $388,571.20
It is also worth noting that directors received a large tranche of shares for nil consideration as part of their 2022 performance rights package. For instance, Andrew Purcell received just over 32 million shares in this case.
Over the three years, we can appreciate that directors have been significant net sellers of stock. It is interesting that the purchase and sale prices are fairly similar. However, if we strip out the large sale by Andrew Purcell on May 28, 2021, the average sale price rises sharply to $0.094. Those trades were indeed well-timed and would have equated to an approximate 166% average profit.
Although the directors have taken a significant amount of cash off the table, they have also demonstrated conviction by continuing to purchase stock from time to time. Furthermore, these directors have maintained significant holdings in the business and do not appear to be seeking a complete exit.
As such, we do not consider this to be a red flag, but the quantity of selling means this is not a rare "threat" either.
Over the three years, we can appreciate that directors have been significant net sellers of stock. It is interesting that the purchase and sale prices are fairly similar. However, if we strip out the large sale by Andrew Purcell on May 28, 2021, the average sale price rises sharply to $0.094. Those trades were indeed well-timed and would have equated to an approximate 166% average profit.
Although the directors have taken a significant amount of cash off the table, they have also demonstrated conviction by continuing to purchase stock from time to time. Furthermore, these directors have maintained significant holdings in the business and do not appear to be seeking a complete exit.
As such, we do not consider this to be a red flag, but the quantity of selling means this is not a rare "threat" either.
Coming soon
Melbana has achieved a great deal over the last few years. Register below for this weekend's complete analysis on whether Melbana qualifies as a Triple Threat.
Register for next week's Melbana update
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