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
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