The shares of LGO and Monitise are down over 40% since 11 June, while those of Drax have lost 30% of value during the period.
LGO Energy: A Calculated Bet?
The explorer has released nine trading updates since 11 June. Back then, its stock was essentially flat for the year, but now it trades at 2.25p, or about 44% below the level that it recorded only five weeks ago.
A few details have emerged about its pipeline over the last few weeks: proven and probable reserves are on their way up but, as they rise, LGO will likely need to raise funds to support its drilling plans.
Unsurprisingly perhaps, its stock trades in line with the price of the placing that took place in late February, when LGO issued 172 million new shares at 2.5p each, raising proceeds of £4.3m.
At that time, it also secured a $25m pre-paid oil swap facility aimed at funding its development drilling programme in the Goudron Field, Trinidad.
LGO can raise external capital of different kinds, which is a very good sign. It remains somewhat of a casino stock, but it may be a good time to consider a speculative trade.
Drax: Cheap Enough?
Drax stock lost 30% of value on 8 July, and still trades around that level.
Back then, Drax announced that the government had decided to “remove the Climate Change Levy (CCL) exemption for renewable electricity generated after 1 August 2015“.
“Whilst we are still assessing the impact of this change, our initial estimate is for a reduction in EBITDA in the region of £30m in 2015 and £60m in 2016“, it added.
If you are bottom fishing — its stock hovers around its all-time lows — and you trust market analysts, upside could be between 4% and 80%. Drax is a relatively small bite, so it could be taken over, but I wouldn’t bet the farm on that.
I am after value, and its stock is expensive based on fundamentals and trading multiples, in my view.
Monitise: Not One For Me!
Not only Monitise’s latest trading update made for a poor reading on 6 July (I warned you on 3 July), but only a couple of days later the group said that it had been notified by Visa Europe “that it will reduce its shareholding over time while continuing to work with the company throughout the duration of its current commercial agreement“.
That was a terrible blow for investors who had hoped for deeper cooperation between the two.
Market dynamics, which favour larger players in the industry, poor fundamentals and significant financing needs help me conclude that Monitise is not a name that could reward your patience — not even after a stock performance that reads -73% year to date.
Moreover, there are plenty of more solid alternatives in this market.
For instance, Monitise doesn't stand a chance to beat a small-cap that is included in new research published by out Motley Fool analysts. The shares of this value play also carry less risk then those of LGO Energy and Drax Group, and promise much more upside based on its attractive trading multiples and strong fundamentals.
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Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK owns shares of Monitise. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.