Pharos Energy (LSE: PHAR) shares are on the charge at the moment. I wanted to know if there’s more to this little-known energy stock with a £106m market cap than meets the eye.

Red-hot penny stock

The company is a small oil and gas producer with assets in Vietnam and Egypt, where its strategy is largely focused on squeezing more value from existing fields.

In a market that can swing hard on oil prices and headlines, its fortunes tend to move with both operational updates and the wider energy landscape.

The company’s share price has rocketed 25% higher in 2026 to 25.4p as I write on 23 March despite an 8% drop on Monday morning.

What’s happening in the energy sector?

The Iran war has disrupted global energy supply lines, with repeated warnings about the ongoing impact around the situation in the Strait of Hormuz.

The International Energy Agency has even called the conflict the greatest ever threat to global energy “in history”. Many analysts are tipping even higher crude oil prices, while oil and gas stocks like BP have hit all-time highs.

The company’s producing assets are in Vietnam and Egypt, so it’s not drilling in the Gulf. But higher realised prices can still mean stronger cash flows, which can swing a penny stock like Pharos quickly.

More than meets the eye?

That brings me to the company itself, which matters once the current headlines fade away.

In December, Pharos said it was running a fully funded six well infill and appraisal drilling programme in Vietnam. Management called it the most significant investment in those assets since original development.

It also said initial performance from the first Te Giac Trang (TGT) well was ahead of pre-drill expectations. Throw in the fact that it’s debt-free and has cash of about $16.6m and it’s easy to see why its valuation is climbing.

Valuation

After it’s recent stellar run, this red-hot penny stock doesn’t come cheap. The company’s shares trade on a price-to-earnings (P/E) ratio of around 31 with a 4.5% dividend yield.

That does feel quite punchy for a small company in a notoriously cyclical sector. However, if oil prices stay elevated, the company’s potential outsized earnings could help to support that strong yield.

That said, it pays to be cautious, particularly during these uncertain times.

Small producers can see their fortunes swing quickly with oil prices, and the current price action is heavily tied to a geopolitical shock. If the war premium falls away quickly, I wouldn’t be surprised to see a share price correction or crash.

Key takeaway

The Iran war has turbocharged interest in anything oil-linked as investors position themselves for the potential economic fallout.

Pharos has been a beneficiary as a micro-cap stock that has shown some recent signs of promise. However, big risks remain including a potential commodity price drop or operational headaches.

That said, the company’s positive Vietnamese drilling programme means it’s more than just a headline play. I think the company’s preliminary results release on Wednesday will be a must-watch for investors interested in the energy sector.

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If the answer is much higher than the current share price, the stock might be trading below fair value.

Essentially, it calculates the cash a company is expected to generate each year, then ‘discounts’ it back using a required return, say 10%-12%. 

Think of it like asking how much you’d pay today for £1,000 a year from now. If the market price is way below that present value, either the market’s too gloomy or the model’s too optimistic.

In many cases, it’s a mix of both — which is why you need a margin of safety. But how does that look in practice?

Example 1: Pharos Energy

Pharos Energy (LSE: PHAR) is a small oil & gas producer operating in Vietnam and Egypt. Some DCF estimates suggest the shares trade around 61% below fair value, with the average 12-month price target eyeing a 111% gain.

Other valuation metrics back this assessment. It has a forward price-to-earnings (P/E) ratio of 5.27 and EV/EBITDA of 1.51 (both well below average).

Income-wise, Pharos offers a dividend yield of around 5% backed by strong cash flows. However, volatile oil price swings mean the payout ratio has bounced around over the years.

Analysts expect earnings to grow significantly, with some forecasts expecting 50% a year as production and pricing improve.

The catch is obvious: profits depend heavily on commodity prices and stable operations in places like Egypt and Vietnam, so there’s both geopolitical and oil-price risk.

Example 2: Future

Future (LSE:FUTR) is a digital media group behind online magazines and specialist brands across tech, gaming, finance and more. The share price has been hammered due to AI’s effect on digital ads, now down roughly 80% from its peak over five years.

Yet the business still brings in decent cash. In 2025, it reported revenue down about 6% to roughly £739m. However, it kept an EBITDA margin around 30% and generated close to 100% free cash flow conversion.

Debt looks manageable at about 1.1 times EBITDA, and the firm has been able to raise its dividend and run buybacks. Companies don’t do that unless cash flow is solid.

Using a DCF model, analysts reckon the shares could be trading at 78% below fair value.

Still, there is a genuine risk from AI. If the company can’t adapt to meet the changing landscape, that strong cash flow might soon dry up. In other words, it’s cheap partly because the future is uncertain.

Why these might appeal to UK investors

For UK value investors willing to stomach the bumps, Pharos and Future are worth considering at these cheap prices. They exhibit how DCF-based undervaluation can flag opportunities where sentiment looks too gloomy versus long-term cash flow power.

But just because a share’s cheap today, there’s no guarantee the price will go up in the future. Building a diversified portfolio of growth, income and value shares can help reduce risk of losses in one area.

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There’s usually a plausible story behind even the scams. Artificial intelligence has been a key factor this year. And if I had a penny for every headline like “UK penny stock sure to soar in the AI revolution“… well, I’m sure I’d have more than if I’d bought the stocks.

Look closely

Here’s my first recommendation: check the publisher. There’s a lot of made-up names going round, trying to sound like genuine London or Wall Street financial publications. But words like ‘times’, ‘journal’, ‘herald’ etc in unfamiliar arrangements mean caution is needed.

If we don’t recognise it, search for the exact publication title. Has it been going a long time? Is it quoted by reputable sources? Does it have a record of in-depth investing analysis?

Next tip: check the stories themselves carefully. Are there any calculations based on results to back up share price claims? Are there any financial fundamentals there at all that we can check? Is there any reference to real analyst forecasts? Check any numbers against actual company results, and take a look at forecasts published for free by a number of financial sites.

Companies duped

I won’t name any of the companies I’ve seen touted recently. That’s because whenever we have a bout of this, there’s no suggestion the companies themselves are part of it. They’re usually just going about their businesses. And it’s unconnected third parties who bought cheap trying to pump up the prices so they can dump for a fat profit.

During what seems like a generation ago now, smaller oil companies were among the hottest growth prospects. It’s a business that’s always going to be risky — especially for ‘jam tomorrow’ stocks that are still exploring and haven’t made a profit yet.

But now that AI has eclipsed them as the go-to for growth (and for scammers), I reckon some are genuinely worth a closer look. Pharos Energy (LSE: PHAR) is one, even though its share price has been essentially flat for most of the past five years. And it’s actually dipped 12% so far in 2025.

Cheap penny stock?

Small-cap oil explorers — and the Pharos market cap is just £89m — often have erratic earnings. Exploration can easily cover a long timescale, with expenditure and profits often widely separated.

September’s interim results, for example, showed revenue of $65.5m, though the company did report a net loss of $2.2m. But operating cash flow of $16.1m coupled with $22.6m net cash at 30 June mean I don’t foresee any immediate liquidity problems. It’s a risk to watch for in the future though.

Low valuation

Analysts predict profit for the full year and put the stock on a forward price-to-earnings ratio of only 7.3. And they expect a dividend yield of 5.7%. After Pharos extended its Vietnam oil and gas rights out to 2032, I think it’s well worth considering now.

But I have one final caution, to show the way penny stocks don’t start off that way. In its previous identity as SOCO International, the share price climbed close to 600p — at the time of writing, it’s 21.5p.

The post How to avoid penny stock rip-offs, and one to consider buying in October appeared first on The Twelfth Magpie.

Still, I think there are moments when a penny stock deserves a closer look.

This September I’ve been keeping tabs on two names that have made promising progress recently. Sure, they come with risks, but for investors seeking growth opportunities, I think they’re both worth considering.

Pharos Energy 

Pharos Energy (LSE: PHAR) has been quietly building momentum. The share price is up 66.7% in the past five years and the company has managed to maintain dependable revenues along the way. 

Plus, with a dividend yield of 5.6% supported by a modest 27.5% payout ratio, income investors may also find this attractive.

Valuation-wise, Pharos looks cheap. A price-to-earnings (P/E) ratio of 4.9 suggests the market isn’t placing a high premium on earnings, which could make this an undervalued energy stock to consider. Importantly, earnings growth has been strong, pushing net margins up to 17.3%.

One of the most encouraging updates came with the extension of its licences for Vietnam oil and gas fields through to 2032. That provides much-needed certainty over future production and revenue streams. Meanwhile, the business has almost eliminated its debt, cutting borrowings from £62m three years ago to close to zero today.

The main risk, though, comes from liquidity and the balance sheet. Short-term liabilities of £108m outweigh current assets of just £59m, giving it a bloated quick ratio of 3.66. If cash flow dried up, the firm could quickly find itself under pressure. For that reason, investors should still tread carefully. 

But given the improvements to profitability and debt reduction, it’s a stock worth watching more closely.

hVIVO

Clinical research specialist hVIVO (LSE: HVO) is another penny stock making waves. Known for its human challenge trials, it recently posted a strong trading update for the first half of 2025. Revenue came in at £24.2m, keeping it on track for full-year expectations of £47m. The group also had a healthy £23.3m in cash as of 30 June 2025.

Growth has been supported by a healthy sales pipeline, with several large human challenge trial opportunities in advanced discussions. The company has also been expanding its offering, with clinical site and hLAB services gaining traction. Recent acquisitions of CRS and Cryostore added another £5.5m to group revenue in the first half alone.

But as with many biotech stocks, there are risks. Financing across the biotech sector remains under pressure, which could reduce client spending on trials. High fixed operating costs mean hVIVO needs strong contract flow to cover expenses. More critically, its revenue is heavily dependent on converting contracts and avoiding delays. A single cancellation can have a big impact, making forecasting difficult.

Still, with relatively low debt to equity, strong cash reserves and an expanding portfolio of services, I think it’s an intriguing stock for investors to consider – if they’re comfortable with potential volatility.

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But while trawling through the London market for undervalued shares to add to my passive income portfolio, I may have stumbled across something interesting: Pharos Energy (LSE: PHAR). This tiny oil explorer could be one of the rare penny stocks that combines both income and value.

An up-and-coming miner

Pharos Energy has operations stretching across the Far East, Southeast Asia, the Middle East and North Africa. Its current focus is drilling offshore Vietnam and in Yemen, where it is working on both established and exploratory oilfields. 

With a market capitalisation of just £88.13m and a share price of around 20p, it sits firmly in penny stock territory.

The share price has been volatile, falling around 20% in 2025 so far. Yet zooming out, it is still up 51% over the past five years. That track record makes it a more resilient story than many penny stocks, which often drift downwards and never recover.

Recent developments suggest there is life in the tank. In December 2024, Pharos received a five-year extension from the Vietnamese government to continue developing the Te Giac Trang (TGT) and Ca Ngu Vang (CNV) oil fields. 

That provides some welcome security and clarity around future production.

Still, investors should be cautious. The oil industry is inherently cyclical, while political instability and foreign exchange risks in emerging markets can impact profitability. Liquidity is another challenge, as penny stocks can be harder to trade than well-established FTSE 100 names.

Dividends and value

The recent share price dip has had two intriguing side effects: it has boosted the dividend yield and left the valuation looking unusually attractive.

Today, Pharos offers a dividend yield of 5.6%, well above the FTSE average. Meanwhile, the stock trades at a price-to-earnings (P/E) ratio of just 4.8 and a price-to-book (P/B) ratio of 0.38. Those numbers suggest deep value.

Unlike many penny stocks, Pharos is fairly profitable too. Last year, it generated £106.4m in revenue and turned £18.47m of that into profit, giving it a net margin of 17.3% – its highest in over five years. Meanwhile, return on equity (ROE) sits at a respectable 8.3%.

Worth considering?

Pharos Energy looks like a rare breed: a penny stock that pays dividends, generates profits and has a promising five-year roadmap. The risks are real, but so is the growth potential.

The balance sheet looks sturdy as well. Assets total £341m, with operating cash flow of £40m. Most importantly, the company has virtually eliminated debt, cutting borrowings from £62.3m in 2022 to just £159,000 today.

For income investors willing to look beyond the mega-caps, this emerging energy play is worth considering as an intriguing addition to a diversified portfolio. If production growth continues and oil prices remain supportive, this little penny stock may prove to be more than just loose change.

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Pharos Energy

Pharos Energy (LSE:PHAR) has performed reasonably well over the past year. As markets have slumped, the firm’s share price has only fallen by about 6%. It currently trades at 23.1p. 

The firm, which is an oil and gas explorer and producer, has quickly revived its fortunes over the past two years.

In 2020, it reported a pre-tax loss of $241m. By the next year, this had turned into a pre-tax profit of $38.6m.

It’s no secret that most oil companies are currently benefiting from surging prices of both Brent and WTI crude oil. This price trend essentially makes Pharos Energy’s produce more valuable.

The company stated in November that it had seen high flow rates from the first three wells dug at its Vietnam operation, with a fourth well to be perforated in due course.

It has also drilled three wells at its project in Egypt, but recently agreed to sell 55% of its assets to a private equity firm. This transaction bags the company $5m immediately, plus significant performance-based add-ons.

Given the nature of oil exploration, however, it’s always possible that projects could deliver little or no oil.

Marston’s

Secondly, Marston’s (LSE:MARS) endured a torrid time during the two years of the pandemic. With restrictions on eating out, this pub firm really felt the pinch. It currently trades at 54p.

For the year ended October, between 2020 and 2021, however, pre-tax losses narrowed from £388m to £171m.

Furthermore, for the six months to 2 April, pre-tax losses were just £7.5m, down from £122m for the same period in 2021. Revenue also increased from £55.1m to £370m over the comparison period.

Although past performance is not necessarily indicative of future performance, these improving financial results do give me confidence as a potential investor.

While the business is now benefiting from the relaxation of pandemic restrictions, it’s also now feeling the effects of higher electricity prices, tighter food supplies, and wage inflation. 

The company does have certain pricing strategies up its sleeve to try and relieve this pressure, but there’s the very real chance that these economic factors begin to eat into future balance sheets.   

Overall, these two businesses are currently in decent shape. While their penny stock status does heighten my investment risk, I will be splitting my £1,000 equally and buying shares in both stocks next month.

The post How I’ll invest £1,000 in penny stocks in July! appeared first on The Twelfth Magpie.

A UK penny stock with potential

Oil & gas production and exploration company Pharos Energy (LSE: PHAR) released its full-year results report today.  The company has operations in Egypt, Vietnam and Israel. But 2020 wasn’t kind to the business because of the pandemic and the collapse of the oil price.

Revenue declined by just over 25% compared to the 2019 figure. And Pharos posted a big loss rather than profits because of a mammoth impairment charge “as a result of the oil price volatility and movements in 2P reserves.”

In years gone by, Pharos (then called Soco) used to generate loads of cash and pay generous shareholder dividends. However, net cash from operations plunged by 22% in 2020 and the company even raised just under £12m in a placing in January to fund phase 1B of its waterflood programme in Egypt.

Other measures to preserve cash include the directors taking a 50% remuneration cut from 1 April  — I hope they weren’t just fooling when they said that! And there’s no shareholder dividend.

However, we can’t blame the pandemic for everything. Pharos has struggled to maintain its profitability for some time. And the share price shrank from somewhere over 400p in August 2014 to just above 23p today. Perhaps one positive is the valuation looks undemanding by some measures. For example, the price-to-tangible book value runs near 0.6.

Operational progress

In the report, president and chief executive Ed Story pointed to some positives. For example, production was in line with previous guidance. And the company received an extension to its TGT and CNV licences in Vietnam. In the third quarter of 2021, Pharos plans to start drilling in accordance with its TGT Full Field Development Plan. And that plan secured final approval during 2020.

Story said the operations in Vietnam have the lowest breakeven in the firm’s portfolio. And that means investments there have a quick payback time. On top of that, the drilling programme will be fully self-funded from the operating cash flows generated in the country. And the company expects to achieve post-capex free cash flow in the first half of 2022.

In Egypt, Story reckons reserves have been “significantly” upgraded. And the waterflood programme has begun.  Meanwhile, Pharos is “well advanced” in its search for the “right” farm-out partner to invest in the project.

When a UK penny stock has been performing as poorly as Pharos has for so long, it takes a leap of faith to embrace the forward-looking operational potential. But I reckon the outlook’s positive and the shares may be worth holding now.

However, today’s stock price around 23p is well up from the lows last autumn near 10p. And the business operates in a cyclical industry with much of the trading outcome dependant on oil prices, which is outside the directors’ control.

These shares come with many risks, but I’m tempted to tuck a few away for the long-term recovery and growth potential of the underlying business.

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Mr Slater was right. But for most of us, who have limited time to research and manage our investments, I think it makes sense to hold a mixture of reliable elephants and smaller, more exciting stocks.

An elephant I’d buy

BP (LSE: BP) is a good example of the kind of elephant I like to own. The shares are unlikely to double. But in recent years, the company has shown how investors can benefit from investing in elephants.

The huge financial impact of the 2010 Deepwater Horizon disaster was followed by the 2015/16 oil market crash, which saw oil prices drop below $30 per barrel at one point. Despite these pressures, BP only missed three quarterly dividends in 2010 and didn’t cut its payment at all in 2015/16.

Today, the company has restructured its operations to be profitable at lower oil prices and is starting to focus on debt reduction.

Analysts expect BP to report underlying earnings of $0.53 per share for 2019 and pay a dividend of $0.40 per share. Although earnings cover for the dividend looks fairly slim, cash generation has improved over the last couple of years. I expect this payout to remain safe.

These forecasts price BP shares on 12 times forecast earnings, with a dividend yield of 6.4%. I rate this FTSE 100 giant highly as an income buy. But I don’t expect too much in the way of growth. For that, I think we need to look elsewhere.

This small-cap yields 9%

The next company I’m going to look at is SOCO International (LSE: SIA). This £250m oil and gas producer operates in the waters off the coast of Vietnam and at onshore oil fields in Egypt.

At the time of writing, SOCO shares offer a dividend yield of 9%. Such a high yield normally means that the shares are too cheap, or that a dividend cut is likely.

Personally, I think this stock could turn out to be a serious bargain at current levels. Group production is expected to reach about 13,000 barrels per day by the end of 2019. Production costs are low, at less than $10 per barrel. Historically, this has enabled the group to generate very high levels of free cash flow.

Using this week’s half-year accounts, my sums suggest that SOCO shares trade on just six times underlying free cash flow from the last 12 months. If this level of cash generation can be maintained, then I think the dividend should be safe. The payout might even rise.

At a last-seen price of 65p, these shares also trade at a 37% discount to the firm’s net tangible asset value of 103p per share.

This looks like a bargain. What’s the catch?

The main problem seems to be that growth has been limited in recent years and CEO Ed Story’s strategy is unclear. Is the business, which Mr Story founded, heading for a long-term decline?

A strategy day is being planned for City analysts in October. Hopefully we’ll find out more then. Until that time, I continue to feel that SOCO is a potential bargain for small cap investors.

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One reason for this is that oil prices have fallen sharply over the same period. But oil price aside, are there any other factors shareholders should be aware of? And are Premier shares still cheap?

I’ve been taking a closer look and will give my verdict below. I’ll also consider the investment case for another oil stock that looks cheap to me but offers limited visibility for shareholders.

Good progress

A trading update in May suggests that PMO boss Tony Durrant is continuing to deliver on his operational and financial targets.

Mr Durrant has increased production guidance for the year from 75k to 75k-80k barrels of oil equivalent per day (boepd). He also advised investors that if oil prices stayed the same, debt reduction would be at the top end of the firm’s $250m-$350m target for the year.

It was a solid update that didn’t raise any red flags for me.

Are the shares still cheap?

As I’ve written before, Premier shareholders need to remember that the firm’s valuation is still dominated by its enormous debt pile.

Net debt fell from $2.33bn to $2.25bn (about £1.75bn) during the first four months of 2018. But that still dwarfs the market value of the firm’s shares, which is about £685m.

What this means is that when valuing these shares, we need to look at the firm’s enterprise value (market cap + net debt) to get the full picture.

At the time of writing, Premier’s enterprise value was about £2.5bn. That’s about 7.5 times last year’s free cash flow, which looks pretty affordable. The equivalent figure for Tullow Oil is about 11, for Royal Dutch Shell it’s around 12. However, both of these larger companies pay dividends and benefit from stronger balance sheets than Premier.

In my view, Premier shares are probably fairly valued at current levels. As debt continues to fall I’d expect the shares to make further gains. But the share price will remain very sensitive to changes in the oil price, so shareholders may need to be prepared for a lively ride.

A true bargain?

One oil stock that’s failed to benefit from strong market conditions is Asia-focused SOCO International (LSE: SIA). This former favourite has continued to drift lower over the last year and now trades at just 66p. That’s a 33% discount to the stock’s net asset value, which I estimate at 99p per share.

Why is SOCO so cheap? Unlike Premier and Tullow, it has net cash and a track record of generous dividends — the stock currently has a forecast yield of 6.8%. Another plus is that founder and CEO Ed Story still has a 3.5% shareholding, suggesting his interests should be well aligned with those of shareholders.

I think one reason why this stock keeps drifting lower is that the market isn’t sure where this business is going. Its Vietnam assets remain cheap to run and cash generative. But we don’t yet have much information about the performance of Merlon, a recent acquisition in Egypt.

In my view, SOCO carries some risk. However, the company’s historical performance and its focus on cash generation suggest to me that the shares should probably be worth more. I’d rate the stock as a contrarian buy.

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The firm’s shares have fallen by about 65% since June, after flow testing the Icewine #2 well failed to produce any oil. 

The company is actively searching for a ‘farm-out’ partner to share the costs of continuing to drill and evaluate the Icewine acreage. The deadline for bids was the end of 2018, but in an update today the firm said this had been extended into the New Year.

Multiple “high-quality” companies are said to be examining the Icewine data while considering a bid. But the falling price of oil probably isn’t helping. A deal is now being targeted during the first quarter of 2019, so that there’s still enough time to schedule “the drilling of multiple wells” during the 2020 summer season.

A big worry

As a pure explorer, 88 Energy doesn’t have any oil or gas production or any other source of revenue. This means it relies on cash from shareholders and loans to fund its operations.

Unfortunately, investors are becoming less willing to supply fresh cash. In October, an attempt to raise A$14.33m (£7.96m) from existing shareholders only yielded A$3.6m.

In November, the firm tried again, hoping to raise £5.9m from by selling new shares to investors through brokers. This raised £5.56m before costs — more successful, but still short of the firm’s target.

My verdict

88 Energy does have a large and prospective acreage. The firm could still make a big, valuable oil discovery. But this is very much a gamble, in my view.

Financing seems to be getting harder to find and interest costs mounting on the group’s loans. This stock is much too speculative for me.

I’d buy this instead

Although I do invest in small oil companies, I have a rule of only investing in firms which have commercial reserves and ongoing production. What I look for are companies that can fund their exploration activities entirely from their own oil and gas sales.

This may seem dull and boring, but it helps protect me from the kinds of losses often suffered by shareholders in speculative stocks such as 88 Energy.

One of my top picks in the small-cap oil sector at the moment is SOCO International (LSE: SIA), which is one of the largest producers in Vietnam. This company is still run by founder Ed Storey, who has a 4.2% shareholding in the firm.

A bid target?

Mr Storey is now in his 70s. I wouldn’t be surprised if he looked for a takeover bid or a merger at some point in the next few years, to allow him to step back from the business.

In the meantime, SOCO is expanding its operations into Egypt via the acquisition of Merlon. This deal should add at least 6,500 barrels of oil per day to the group’s production and generate strong free cash flow, thanks operating costs of just $6 per barrel.

Analysts expect SOCO’s earnings to take a step up next year, doubling to $0.14 per share. This puts the stock on a 2019 forecast price/earnings ratio of just 6.3. This looks good value to me, especially as it’s paired with a dividend yield of nearly 7%.

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