Stock Gumshoe

This teaser, for the “OIL COMPANY THAT HAS OUTPERFORMED EXXON BY 170% IN THE PAST YEAR,” comes from Orbus Investor’s Sam Hopkins.

Orbus Investor is a global investing newsletter that we’ve seen before — they told that that “Cash is Dead” and teased us about Verifone back at the end of March (unchanged so far).

You can get this special report, “Fossil Fuel Time Capsule: How to Profit from Libya’s 39 Billion Barrels of Oil” with a discounted subscription — $199 a year at the moment.

So I guess that gives away the general thrust of this investment idea — it’s all about Libyan oil.

Remember Libya? They used to be one of the major oil exporting states, before what we’ll call Qaddafi’s “evil years” before he became an international statesman (insert here any degree of sarcasm you’re comfortable with).

The U.S. oil majors were pretty active in Libya before those “evil years”, and they were awfully eager to jump back in when Libya re-entered the community of nations near the end of 2003 and it became acceptable for US companies to trade there. So we’re all on the same page with that.

Hopkins asserts that “Libya holds Africa’s top oil reserves, which are even more bountiful than those in Nigeria’s lawless Delta region. For twenty years, Libyan oil just sat there, frozen in diplomatic ice. But since 2004, a western thaw has let one Canadian company heat up with profits, because they were the first on the scene, beating even the majors to the world’s purest remaining onshore hydrocarbon reserves.”

This company has only drilled one hole in Libya, according to Hopkins, but has already shot up by 200% in six months. He says it has “up to 50 promising leads in the same area!”

This company has “1/1000th the market value of ExxonMobil.”

And I always like it when we get some quotes from newspapers and magazines to give extra credence to the newsletter’s hype:

“The New York Times has suggested that Libya possesses ‘enough to meet the daily imports of the United States for eight years.’”

Newsweek: “Libya: Untapped Oil Oasis”

So what other hints do we get about this little Canadian firm that was first into Libya after the 2004 “thaw”?

It’s “tiny.”

This company has “won the rights to 6,182 square kilometers of land in Libya’s Ghadames Basin…a proven oil producer.”

They won these rights in competition with all the big oil majors, in an auction that was held in January, 2005.

Their parcel has a “minimum of 25-30 exploration prospects.”

Their properties are “in both Libya and the Bay of Biscay off the shores of France.”

Drilling in Libya began on September 29 last year.

And it’s trading at under $12.

So what is this “remarkable company that outmaneuvered some of the biggest names in the oil business to stake a claim at one of the world’s most promising oil properties?”

Well, a few readers sent in suggestions (some more certain than others) about this company, including one of our earliest and most enthusiastic readers back in the beginning of April — and after double checking I can confirm that this is …

Verenex Energy (VNX in Canada, VRNXF.PK in the US)

Verenex is indeed a pretty new company, spun off from the Vermillion energy trust a few years ago. They started with some exploration properties off of France (who knew France had oil? Not me) and then won that license in Libya a bit over two years ago.

They’ve now drilled second and third holes in Libya, and released results yesterday morning that they called “encouraging.” (A fuller summary of their position was in their last earnings release, two weeks ago)

I have no idea whether these results are really encouraging or not, but I do accept the premise that there’s lots of oil in Libya and these folks may well end up drilling a bunch of it up. The daily production from their test wells sounds like it’s certainly worth developing.

They are not yet, however, profitable, and they may well sell off all or part of their French operations, which seem to recently be in some production decline, to fund development and exploration in Libya. This is all guesswork on my part, as I’ve only skimmed their filings. One part did jump out to emphasize the fact that they’re not the only beneficiaries of this Ghadames basin: “Verenex is the operator and holds a 50% working interest in Area 47 in Libya. Under the EPSA terms for Area 47, Verenex would receive an initial production allocation (free of all taxes and royalties) of 6.85%”

So, the other 50% is I believe held by Medco International Ventures, a subsidiary of an Indonesian company, and there’s a pretty solid bite from royalties and taxes — I don’t know how this compares with deals in other countries, though high royalties and taxation are of course de rigeur for oil production … it’s the country that really owns the oil, after all.

So that’s all I know about Verenex — dunno if it’s worth investing after this 200% runup, but it doesn’t look all that expensive to me if you believe Hopkins’ assertion that their Libyan properties will become a hub of world-class light sweet crude oil production. We’ll see.

Orbus Investor bring us this tease, for “The currency 79 Nations are turning to.” And I’ve also seen a similar email from him called “The Company Behind the World’s New Money,” pushing the same stock tease to sell the newsletter.

The sell is fairly simple (though long), basically that the international push to cashless payments is a juggernaut that will make you rich.

In the words of Sam Hopkins, the analyst for Orbus, “there’s a new world currency gaining circulation - it’s completely taking the place of cash - and every single time a transaction is made in this currency, you could be making money, too.”

Some details are provided — 210 billion transactions every year, almost 8 trillion spent just on personal items through cashless payments, and 10 trillion by governments who are making their benefit programs cashless.

Hopkins writes, “we’ve already hit the tipping point to the complete annihilation of cash transactions. Because the world’s most influential power brokers are leading this revolution: governments and banks.”

So that sounds appealing — as we’ve seen from some payment processors, like the hugely successful Mastercard IPO, taking a little off the top of cashless payments can be a huge money maker and these companies can certainly capture the market’s imagination.

So what is this company?

“The less cash is used around the world . . . the more money you could make.”

Orbus provides some clues:

Jim Cramer called it his “best sleep at night stock of the year” at one point.

“this company has been on the leading edge of this growing movement to obliterate cash since the late 1980s.”

95.49% return on equity.

$31 million in cash.

“their market share by revenue is estimated at an impressive 48% worldwide.”

So that ought to be enough to sniff this one out … and the Stock Gumshoe, thanks to his trusty informatipercolator, will share with you that the name of this company is …

VeriFone Holdings (PAY)

They did indeed have 95.49% return on equity last year, though according to Google Finance the prior year it was 15% so don’t get too excited.

And while they’ve been public for only about two years under this name and ticker, they have been around a while with several different stock listings on the NASDAQ and NYSE — they were founded in 1981.

Jim Cramer did utter that “best sleep at night” line about the company on CNBC.

So I’m convinced this is the company Orbus is teasing us about … now, is it worth investing in?

I don’t know. It’s not cheap, with a trailing PE of about 60 and a forward PE of something like 20, depending on who you listen to. But the industry they’re in is certainly a massively growing one, and they do have some good penetration.

Verifone, for those who don’t know the company, makes many of the terminals you see at grocery stores, gas stations, etc. for swiping your debit and credit cards. They’re also moving into contactless payment offerings, and may be a player in cell phone payments when that goes mainstream in the US (I don’t know to what extent they do this internationally right now). They have had some relatively large contract wins, including KeyCorp banks, Mexican McDonald’s restaurants, and others, and they certainly have a big international presence.

I don’t know to what extent they fulfill the promise of the ad’s real tease, which is getting a cut of all electronic transactions with this “new currency”, because I haven’t looked into their financials enough to know whether they primarily make money on sales and leasing of equipment, or services, or if they get their funds by taking a percentage of transactions. That would clearly be something to know if you wanted to invest in this one.

They’re presenting at a Suntrust conference next week if you want to hear more from the company itself.

There are other companies certainly in this space, including Visa, Mastercard and Amex as well as other specifically electronic payment-based and card and/or equipment companies like Net 1 UEPS (which wins for oddest name), Hypercom and NCR, so they may be worth a look as well if you’re interested in this sector.

And that’s about as far as the Stock Gumshoe will take you — you’ve got the company that may or may not revolutionize international currency, now it’s your turn to check it out. Feel free to comment if you know anything about these guys or want to share. Best of luck.