Disclosure: The author has a short position in one or more of the shares mentioned. 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.
Texan oil company Frontera Resources (FRR) has been relieving retail investors of their cash for over 12 years now. In that time, it has blown a staggering $490 million on unsuccessfully attempting to extract oil from Georgia.
In 2011 when it requoted on AIM after a merger which saw its domicile change to the Cayman Islands, it even managed to raise extra money from investors at 4p while a death spiral financing was in full flow. Several dilutive issues later, it took advantage last week of the short memories and exuberant current mood of the retail investor which had seen the shares rise tenfold in three months to repeat the trick with yet another placing.
The current market cap of £86 million is outrageous given the company’s atrocious track record, not to mention the state of its balance sheet, which shows a negative worth of $42 million (and that’s after a restructuring).
When a small US oiler lists in London (think Sefton or Highland Natural Resources) the results are invariably catastrophic. Investors would do well to ask themselves why they choose to come here rather than list at home where there is a huge market in small oil exploration companies.
The AIM market represents the dregs of world stock markets and it is often frustrating to watch companies such as Frontera which represent the dregs of the AIM market. The reason for this is that being bereft of institutional shareholders it is often impossible to borrow and therefore sell short the shares.
Luckily, such has been the stampede of retail gamblers to buy Frontera shares on credit through spread betting firms, a number of these firms will allow short sales to be executed against their book, the huge predominance of which is long. Those who wish to gain exposure on the short side to a real dog of an AIM stock should grab the opportunity to sell while stocks last. I have done so.
This article first appeared on the Nifty Fifty website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve shortly and a new shorting piece from Lucian later this week click HERE
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