By Tom Winnifrith | Saturday 27 December 2014
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.
In my macro themes for 2015 article HERE I stated that I was fundamentally bearish on equities and as such half of my ten tips of the year would be shorts. Another theme for 2015 (as it was for 2014) was an extreme aversion to oil stocks. In that vein I return to Igas (IGAS) which I first suggested shorting at 56p a month or so ago HERE but where I am now halving my target price to 10p making this my second top short for 2015.
The macro climate is clearly not favourable and this poses a particular problem for overborrowed Igas. Its own broker Canaccord speculates that at $90 oil the company could breach the minimum cash ($15 million) on its bond covenants in 2015. Crude is now at c$60 and will – IMHO – fall before it rallies so with a debt breach looming the company needs to do an equity raise and to do it soon.
But given that the shares have fallen from c160p as a 12 month high, investors nursing 75% losses are not going to be gagging for such a placing. One leading resource broker I spoke to reckons that he could get it away but only at 10p. So going short now and looking to buy back into the placing seems a smart move.
Igas has another problem. Its CEO Andrew “Piggy” Austin earned £670,000 last year and so was handsomely rewarded for abject failure. He epitomises everything that is wrong with the AIM oil sector. He earns a fortune if shareholders have a terrible year and would no doubt demand a whopping bonus if he did not entirely fuck it up.
Austin compounded his failings on January 16 when entering into an Equities First Holdings LLC (EFH) deal claiming to be buying £500,000 of shares when in fact he was a net seller of c£7 million. Austin has refused to come clean on the details of the deal as have other CEOs and has had the truth extracted from him but by bit largely thanks to the efforts of authors on this website (Turney, DS Somerville and Huntsman). But he is still not coming clean.
There must be a concern that former shareholders in Dart Energy taken over by Igas thus summer, will consider a class action against either Piggy or Igas or both. This is all a mess and until piggy comes 100% clean this stock is uninvestable.
This is a perfect storm and it is blowing straight into the faces of Piggy and his fellow directors. This has been a good sort call by me so far and it is going to get better in the months that lie ahead. My second tip of the year is to short Igas at 39.5p with a target of buying it back in a placing ( which will be done via discount brokers only so there will be stock freely available) at 10p within months.
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