Shifting Shares (14 July 2019) – Raising cash #YGEN #TCG #SOS
YourGene Health (YGEN)
This company recorded its first profit since its IPO. However, it had a near £5 million operating loss and received £9 million of financing income, billed as “debt restructure gains”.
What that means is that they’re far from sustainable profit. The chart also looks like a potential short if it breaks the last bastion of support.
(All charts used in this article are taken from SharePad)
Things do seem to be improving at YourGene, but I notice cash is at £1.2 million and last year they had a £4 million cash outflow. I wouldn’t be surprised to see a refinancing. The great thing about shorting companies that don’t generate cash from operations is that if you’re short when they announce a placing it’s an instant gap down.
Xeros Technology (XSG)
This is a company I covered last September here as a short with the shares at 40p. They’re currently 9.66p. My guess is they go a lot lower as they’re also still nowhere near the breakeven level. It is difficult to get borrow on this one, which is a shame, because I’d the happy owner of a large short. It’s a gap followed by a down day, which is very bearish.
Victrex is a much larger company, and so it should not be a problem here to get any borrow. The market cap is £1.7 billion.
It’s clearly in a stage four downtrend, as it has been trending lower ever since the selloff last October (looking through a lot of stocks, this appears the be the beginning of a downward trend for many, which coincides with the AIM chart I posted last week or the week before), and also the price is well off its highs – over 40% down from its peak.
Looking closer, the level at 19.44p would be the trigger for me to go short.
Thomas Cook Group (TCG)
Perhaps the easy money short has been made here, but in my opinion Thomas Cook Group is going to 0p. If it does, the upside is still 100%, though the risk is considerably higher when shorting at much lower market caps.
As we can see here the stock tested the 200 EMA once, then once it went through it tried to break past and failed. From then on it was downhill, with the stock testing (and failing to break) the 50 EMA.
Looking more recently, I’m wondering if there might be a short squeeze coming up. It takes time to get money back if a stock goes into administration – so there may be a rush to cover. I’d look for a hammer first or convincing intraday price action, as the stock closed nearly at the low of the day. This tells me that many people are holding their positions with conviction as they are willing to take overnight and weekend risk after the close.
If only this company had raised cash before releasing these results which signaled they’d be needing cash soon. There is a gap in the market for a consultancy firm that specialises in this. Oh, wait – that’s what brokers are for!
The company has raised a massive £7 million with a significantly oversubscribed placing at 15p. That’s a lot of dilution considering the stock price was in the 40s earlier this year, but it removes any fears of immediate capital injections. I went long on the bell as the reason for the fall was that they needed cash, and it seemed like a good risk/reward trade. I’ve got a target of 19p – I’m not willing to hold as there is a lot of overhead supply now.
It was actually a premium placing at the time – well done to the directors for getting this away. It could easily have been a large discount as placings usually are.
LOOP had a profit warning here as revenues were set to be down 7% and EBITDA 20%. It’s impossible to say whether the drop is overdone or not because EBITDA is a meaningless figure.
However, we saw the chart put in three hammers, and maybe put in a bottom as a fund has hoovered up 8.26%. It appears to be a fund of Soros’s. My guess is they are unlikely to buy more for now as they wouldn’t have notified.
The stock offers a trade where we could go long with a stop underneath the recent low, but it would depend on the spread.
Puretech Health (PRTC)
PRTC is a stock that’s a little larger than I usually look at with a market cap of £676 million, but it has formed a nice shallow base after a great run, and is threatening to break into all time high territory.
Since IPO, PRTC has been a bit of a disappointment for shareholders but that trend could be changing now.
All of the moving averages are pointing the right way (upwards) and all time highs mean the entire shareholder register is in profit (no rush to dump). I’ll be going on the bid today.
Knights Group Holdings (KGH)
KGH is another IPO that has a much different story. It’s been a success from day one.
In any case, the level I’d look out for here is 312p.
Here is a good example of being short non-sustainable businesses I mentioned earlier. The 200 EMA was strong support back in October 2018 before breaking down.
It then went back to test the 200 EMA again, this time as resistance.
I couldn’t take the trade myself, as I was inside until today’s placing, but we can see the stock immediately gapped down as the placing was done at 4.5p. Trades like these can give a very nice pay-off if you’re lucky enough to be short a stock that raises new equity.
At the time of publication, the author may have financial interests in some or all of the securities discussed in this article.