Dana, production growth a certainty

Edmond Jackson: Dana directors look slick
Published: 08:37 Tue 24 Dec 2002


David MacFarlane, finance director, and Andrew Bostock, exploration director, each bought 50,000 shares at 13p and 100,000 at 13.25p. While not substantial, these purchases are notable because two operational directors are moved to buy in the market despite the sudden rise from about 10p.

In previous comment it has intrigued me why this rally has gathered pace - the signs have been clear for anyone watching trades. Yes, there is the general strike in Venezuela that has fired crude oil prices, also escalating tension in the Middle East. Yet no oil share is responding quite like Dana.

I believe this shows an interesting aspect of market dynamics. Dana's recent chart has shown a steady and persistent fall, likely exacerbated by investors operating stop losses. I was not surprised to see the shares drift on inconclusive news from shallow water drilling offshore Ghana, also a water bearing well offshore Australia. But the slump to the 10p (just like a year ago) seemed bizarre, given that Dana is a stronger company a year later.

It appeared that suddenly, there was the realisation that the share was plain cheap - and with oil prices soaring, punters identified Dana as an attractively liquid penny share to play the situation.

It bothers me that a sudden rush of money into a trading share can equally mean profits are taken rapidly, at any sign of a change in the environment. Investors in the oil sector need to be aware that at any stage in the impending conflict with Iraq, the crude oil market could take a leap of imagination and anticipate lower oil prices after Saddam Hussein is removed - also Iraqi sanctions.

Yet the Dana directors' purchases register their belief in value at current share prices. Re-reading a late September interview with its chief executive, he claimed the company's long-term planning was on the basis of $17 oil, long-term - even though Opec has kept saying it intends to keep oil in a $22 to $28 band.

A further issue for perception is that bears have questioned the prospects for Dana's exploration, yet here is its exploration director prepared to buy at about 13p.

The main point I want to get across this morning is that Dana's recent dynamics suggest one should be alert for shares that have been depressed by technical stop loss selling. This can indeed limit one's losses, but without a sense of intrinsic value it can extend too far - with shareholders ceding value. Dana illustrates a classic 'moment of truth' and reversal, with a fresh upwards trend.

©2002 Citywire