By Tom Winnifrith | Saturday 11 March 2017
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Certain folks wonder why we, on HotStockRockets, we tipped shares in LGO Energy (LGO) as a buy? Well the reason of course is that we thought they were going to go up and we want our readers to make money. On 28 February when we tipped the shares they were 0.115p offer ( that is 2.3p in today's post consolidation money). They are now 3.35p bid so our readers are very much in the money after just 11 days! But why tip this stock. The best expanation is the original tip which is below. Remember the 20 for 1 consolidation when reading it.
Various contributors to this website have long been strongly bearish on LGO Energy (LGO) as it has been in a dire financial situation, with cash generation failings and its RNS releases have been less than transparent. The share price chart reflects those concerns. Let us be clear, we do not think this is a good company. It is not and we do not rate its management at all. However, this is a site focused on short-term gains and, particularly with the shares having slumped to a current 0.115p to buy, there look good reasons to buy…
The Financial Position
This is now less dire than it was when there was a covenant default on a loan facility with BNP Paribas. That occurred in October 2015, leaving the company in a precarious situation. However, in December 2016 it announced a new funding agreement enabling it to settle all amounts due to the Froggie banksters.
Admittedly, the new funding agreement (with an entity managed by investment firm Lind Partners, LLC) is a potential ‘death spiral’ – monthly repayments can be made in equity and “Lind has the right to convert the balance of the funding agreement into equity at 0.15p”.
However, a later December update included that “a total of $2.17 million in cash payments will be outstanding over the remaining life of the 24 month facility. It remains LGO's intention to make all future payments by way of cash generated through its Goudron Field oil production”.
Cash generation from the Goudron oil field, Trinidad
An “intention” to deliver such cash generation does not mean the company will actually be able to do so – and indeed most to-date here suggests reason for significant caution. However, with an improved financial platform (also including in December a gross £1.18 million placing at 0.12p per share) and now free of the covenant default which further constrained its ability to deploy capital to oil field operations, the company now at least has an opportunity to show that it can deploy such capital into cash generative production. Though for the shares to rise smartly from here, it may well not even need to show so...
This is as the above noted placing was partly to “immediately accelerate” a 10 well development drilling campaign at Goudron – and yesterday the company updated that a rig contracted to drill at least two infill wells has been successfully mobilised and drilling operations are expected to commence in the next week. We thus expect news flow aplenty in the weeks ahead.
Brokers seeking to re-spark interest
We also expect the above to come in conjunction with brokers seeking to re-spark interest in the stock as the news flow is delivered from the basis of the improved financial platform. We note, for example, recent bullishness from VSA Capital Chief Andrew Monk – he arguing that the company is well on the mend and able to ramp up production into a recovering oil price in a geography which is getting seriously interesting.
The Trade: Given the above, buy at 0.115p and at up to 0.125p looking for a 25%+ gain on an offer to bid basis within the next couple of months.
This article first appeared on HotStockRockets - its always paying customers first. If you missed out on this cracking share tip, fear not there are TWO more on the way within the next three weeks and you can access both and all of our archive for just £5, HERE
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