This week’s hottest AIM stock is Ascent Resources (LSE: AST), which has surged by nearly 700% in just a few days off the back of news that the company is in preliminary merger discussions with Ukraine-focused Cadogan Petroleum.
According to a press release on the matter published this morning, Cadogan has made a ‘highly preliminary’ merger approach, following an earlier sharp rise in Ascent’s price ahead of the Easter break. That was inspired by a press release issued before the weekend hinting at a potential merger.
However, the terms of any merger are yet to be announced, and both news releases on the topic from the company have come attached with the standard boilerplate disclaimer: “The discussions are at an early stage and there can be no certainty that an offer will be made, nor as to the terms on which any offer might be made.”
So, at this point in time any guesses regarding a possible merger, or the price at which a potential offer for the company will be made, are purely speculative.
Time to take profits?
After such an aggressive rally in such a short space of time, some of Ascent’s investors will be asking themselves if it’s time to take profits and sell the company’s shares ahead of any concrete offer for the company.
And this might be the right course of action. Indeed, merger discussions still seem to be at an early stage and there’s still a chance the deal could fall through. What’s more, Cadogan may be put off its target by the recent increase in valuation. In five days, Ascent’s market capitalisation has gone from just under £1.6m to nearly £12m, that’s a big increase in value. It may mean that the deal has now become uneconomic for Cadogan.
Moreover, Ascent hardly has the most commendable record of growth. The company’s shares have lost 94% of their value over the past five years and the group has reported heavy losses since 2011. Also, the company has been relying on placings and crowd-funding for at least the last 12 months just to raise enough cash to keep the lights on.
With this being the case, Ascent’s life as an independent public company may be limited.
Top slicing
Even the world’s most experienced investors find it difficult to sell a stock at just the right moment, booking the best possible gains before they evaporate. So, to maximise gains, many experienced investors use a strategy called ‘top slicing’ whereby they sell a portion of their position after a recent rally, book those profits and leave the rest of the position open to profit from any further gains.
It could be time for some investors to use a similar strategy with Ascent. As the company’s future is uncertain, and no concrete offer has been made, it might be wise for investors to book some of the recent gains by top slicing their positions, leaving some stock on the table if an offer does emerge.
