Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

Velsoi:lots of positive news but little response from the share price – I think I know why

Hot on the heels of last week’s positive trading statement AIM listed Velosi has come out with another positive announcement. Despite all the encouraging noise unfortunately the share price remains rooted to its lows.

The group’s associate company, Velosi Oman which is 50% owned by Velosi, has been re-awarded a quality assurance, quality control and third party inspection services contract with Petroleum Development Oman ("PDO"). The new contract is worth an estimated US$30m and commences in June 2009, covering a period of four years. Velosi will provide quality assurance and quality control services throughout Oman, and third party inspection services on a global basis.

PDO is the major oil and gas exploration and production company in Oman, accounting for more than 80% of the country’s crude oil production and nearly all of its natural gas supply. PDO is owned by the Government of Oman (which has a 60% interest), the Shell Group (34%), Total (4%) and Partex (2%).

With all this positive news it’s surprising the share price hasn’t nudged up.

It’s easy to lay the blame at investor’s current dislike of micro caps (Velosi’s market cap is only £17m) combined with the group’s exposure to oil and gas markets which are proving less than appealing to many at the moment!

You can’t even blame a lack on broker support with both the house broker and another independent issuing coverage over the last few days.

In the case of Velosi its lack of investor appeal may also be down to the rather confusing nature of its activities, or at least the description of those activities. The group’s regulatory announcements are generally preceded by a brief description of its activities as the provision of ‘asset integrity and HSE services to a number of major national and multinational oil and gas companies’

I personally consider it difficult to ascertain exactly what is meant by ‘asset integrity management’ and I’m sure I am not alone in this respect. With a key investment mantra being to invest in what you understand it’s hardly helpful to Velosi’s investment appeal, especially during these demanding times.


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