There has been significant two way commentary on FGE in the past 10 days, with the bulls convinced that FGE is on its way back to $2, and the bears (me included) concerned about a capital raising.
Given this morning's trading halt, it's probably a good time to put some facts in a thread for broader comments.
Firstly, when companies undertake a two day trading halt to undertake "a material update on its financial position", history shows that it is not usually a profit upgrade. When it is bad news, the company waits until it can't wait anymore (for fear of breaching ASX listing rules), and then buys time to clarify the position. FGE did this in November 2013 with its initial bombshell, noting some further delays post the initial trading halt period. Compare this with their profit upgrade announcement on Dec 5, 2012 which was a material uplift but no trading halt was called.
In its 28 November 2013 announcement, the company stated that it would suffer a liquidity squeeze during Nov and Dec - with ANZ providing extra working capital to assist during the period. The company also stated that it expected an EBITDA loss of $85-90 million, or an EBITDA profit of $45-50 million after the power station adjustments. Given a variance of 10% is the rule for providing a profit update, I suspect (but don't know) that this is what will be announced.
The possible causes of this are
1. Further overuns on the power stations or other projects (possible, but expect some major heads to roll if announced) 2. A write down of goodwill (from previous acquisitions) - highly likely and this flows through to NPAT, so needs to be announced. Note this is not a cash flow item but does impact net assets. 3. A review of the profitability of other projects - not write downs, but just skinnier margins - standard business risk and shouldn't be too material given the size of their total book.
If FGE announce a deterioration of their financial position, it increases the likelihood of a capital raising. The problem FGE will have is that they are rapidly losing credibility with the investment community and potential investors will want surety that the FGE senior management know their business and can deliver the current pipeline on time and on budget. If they can't demonstrate this, the insto investors won't touch them and the long term future of the company is at risk.
FGE's first hurdle will be the quality of the announcement they make next Tuesday - will it have sufficient detail and transparency or will it be like the 28 Nov 2013 announcement with no proforma balance sheet and announced 10 minutes before the market opened ??
I still remain convinced that FGE will have to undertake a capital raising. If a deterioration in their financial position is significant, we might find we get a cap raising announced next Tuesday.
For existing shareholders, I hope for your sake that FGE don't announce a cap raise next week and that you get an opportunity to trade your holding.
Finally, for all the HC members who think this stock is being ramped, I think you need to consider the real free float of FGE. That is, the amount of shares available to be traded and not held by long-term investors. Last year's annual report shows that 39 holders account for 70% of the shareholding. With only 87 million shares on issue, that means that if all the large holders aren't trading, there is only circa 25 million shares available to trade. Given the daily volumes in the past 2 months, this explains why we have seen significant movement in the stock price, particularly the run up from 80 cents to almost $2 and back to $1.25. Whilst we know some large holders have traded (i.e. Black Rock), their trade volume is miniscule when compared with the total turnover.
FGE Price at posting:
$1.25 Sentiment: ST Sell Disclosure: Not Held
