tipster reiterates sell recommendation on rrs

Tom Bulford the highly respected tipster behind the Red Hot Penny Shares has re-iterated his sell advice on RRS so expect it to be weak in London tomorrow again.

Here are his comments released after close of London trading :-

RANGE RESOURCES (RRL): As ever the decision to sell out of a share involves an assessment of the value and prospects of the company relative to its share price today, with some appreciation of market sentiment taken into consideration.

As a starting point, I take a research note published by Old Park Lane Capital on November 18th. It placed a value on the shares of 14.1p. This comprised 2.9p for the Georgian interests, 6.7p for Puntland and 4.5p for North America.

I would not quibble with the 4.5p for North America. But in view of the postponement to drilling in Puntland and the very considerable political risks in that area I prefer not to have to rely upon any assumed value from here. In any case the big near term issue for Range is Georgia.

Here there is an estimated 2bn of oil in place. However Range's share of this is only 50%. Next Old Park Lane assumes that only 30% is recoverable; that its chance of drilling success is 1 in 12; that the value of oil-in-the-ground is $5.85 per barrel. It then discounts the resulting figure by 50% to allow for political/market risk. After all of this it calculates that the value of Range's Georgia interests are worth 2.9p per share.

Assuming zero for Puntland, 4.5p for America and 2.9p for Georgia we have a value per share of 7.4p. Of course it is possible that Range will have drilling success in Georgia and that could certainly add value. On the other hand if does not find oil then its Georgian interests will have little if any value.

The share price is now above the 7.4p 'base case' implying that it already includes some 'hope value'. I also note that the share price added 50% in December. Clearly a number of speculative investors have boarded the shares in the hope of some good news this year, and that has pushed the price up sharply despite the fact that there has been no concrete news from Range that has increased the company's value.

On balance, then, I have decided to bank a 100% gain since June. Of course you are at liberty to disagree with me, and there may indeed be a case for banking a part of your profit while continuing to run a position in the shares. However, I will not be providing further coverage of this one in Red Hot Penny Shares. SELL