ERG - ERG Limited

[ghotib]

The chartists will probably find this funny, but has anyone been looking at ERG?

They've almost completed a 3 year restructure of the management, the company, and the balance sheet. According to a briefing issued in July 2004 they expect to break even for 2nd half 2004 and show profit from 2005. The business is smart card systems for multi-modal transport applications like One Link in Melbourne.

2nd half 2004 results are due next week, and given the date of the briefing I'd expect them to break even or to show a very small profit. The share price has been falling steadily all year. There are quite a lot of small bids from 0.270 to 0.250 - I don't know what that means, if anything?

Closing price today is 0.270. It's been on a long, slow slide since it fell off a >$26 cliff in the tech wreck.

Comments?

Ghoti

 

[ghotib]

Arghhh!!

According to their own website, results are due in November. I said next week because that's when they made announcements before.

Whack Whack; Engage brain before starting fingers.

 

[stefan]

Re: ERG anyone???

ERG will issue approximately 335.3 million shares at an issue price of 20c each.

Based on this alone I would assume that there is only minor support to keep the price around 30 cents. History has shown that companies who issue that many shares at such a discount will suffer a correction. (Same as MUL who just happens to be in a similar situation...)

I would stay clear until the financial details are out for 2004. Should the situation improve, there will be plenty of time to get in. For now I would predict that the price will suffer over time and hit the 20 cent mark. It may take a few months, but it will hapen if nothing spectacular comes out from their business.

Happy trading

Stefan

 

[ghotib]

Re: ERG anyone???

Based on this alone I would assume that there is only minor support to keep the price around 30 cents. History has shown that companies who issue that many shares at such a discount will suffer a correction. (Same as MUL who just happens to be in a similar situation...)

I very nearly quoted the price as 7 times MUL, but I was trying for rational .

I knew about the rights issue and I'm not in any hurry, especially now I've realised when the results are due (rational doesn't work with crook data).

I'm thinking of offering to buy a parcel off-market from a friend who I think might welcome the capital loss. Maybe at about 22 cents in October, assuming nothing else changes. Does that make sense? I've never done anything like it before.

[quote author=stefan link=board=1;num=1092810505;start=0#2 date=08/18/04 at 16:47:24]
I would stay clear until the financial details are out for 2004. Should the situation improve, there will be plenty of time to get in. For now I would predict that the price will suffer over time and hit the 20 cent mark. It may take a few months, but it will hapen if nothing spectacular comes out from their business.
[/quote]

Interesting. I think "spectacular" would be bad in this case. I'd like to see them meeting project milestones, keeping their staff sane, and steadily building a sustainable, profitable business that pays genuine dividends. Preferably fully franked. I'd be very suspicious of spectacular for the next couple of years.

Happy investing

Ghoti

 

[stefan]

Re: ERG anyone???

I very nearly quoted the price as 7 times MUL, but I was trying for rational

;D

I'm thinking of offering to buy a parcel off-market from a friend who I think might welcome the capital loss. Maybe at about 22 cents in October, assuming nothing else changes. Does that make sense? I've never done anything like it before

Can't help you there. Sounds strange to me. How would you be able to transfer the rights without using a broker? Never done it before and never really thought about it. So you'll need to find out yourself.

Happy trading

Stefan

 

[kooka1956]

Re: ERG anyone???

Ghotib, the NTA after  the new issue  , I read somewhere is going to be 39 cents per share . 22 cents would be a bargain if my memory is correct . As the extra shares of the new issue dilution has already been factored into the share price , (THEY WERE AROUND 60 CENTS BEFORE ISSUE), current price has ben oversold and a rebound is likely to happen . regards.

 

[GreatPig]

Re: ERG anyone???

How would you be able to transfer the rights without using a broker?

See here:

http://www.asx.com.au/about/FAQs_AA2.shtm#Off-Market

If you Google for the Australian Standard Transfer Form, a few different links come up, but there's a sample one here:

http://www.platinum.com.au/reports/trf_form.pdf

Cheers,
GP

 

[stefan]

Re: ERG anyone???

Ghotib, the NTA  after the new issue  , I read somewhere is going to be 39 cents per share . 22 cents would be a bargain if my memory is correct . As the extra shares of the new issue dilution has already been factored into the share price , (THEY WERE AROUND 60 CENTS BEFORE ISSUE), current price has ben oversold and a rebound is likely to happen . regards.

Looks like the market has a slightly different view today.

Keep in mind that this company has not made a profit yet. With 600million shares on offer and no profit around you'd have to be very much in love with this company to call it a bargain and oversold. Just because NTA is put at 39cents doesn't mean much. The figure is not really important to investors as they wouldn't get that much money anyway. What counts is EPS. And it's not looking good in that regard. If a company can just break even then a share price of 30 cents is rather far fetched.

I agree with you that buying oversold companies can be a very rewarding strategy. The trick is to find when a company is clearly oversold. I'm just no too sure with this one. Then again you may have watched it for months or years so you would be in a better position to judge. I for one don't like it for the reasons mentioned. But that's just me. So good luck with it.

Happy trading

Stefan

 

[stefan]

Re: ERG anyone???

Well, if you just bought some at 25.5 you'd already have made a nice profit today  :

Happy trading

Stefan

 

[ghotib]

Re: ERG anyone???

Hi everyone,

Stefan, just to be clear, I meant buying the shares off-market, not the rights (which has closed). It would save the brokerage on both sides, and my trades are all so small that even $20 is worth worrying about. I also just want the experience.

Kooka, are you sure about that NTA? I thought 60cents was quite a while before the rights issue. I'm away from my desk and I'm still a newbie at this and I can't keep the numbers in my mind. I agree that they're oversold, but it's not all that obvious when you consider that they haven't turned a profit for several years in spite of some big projects coming on line.

GP, thanks for the ASX links.

Go good guys

Ghoti

 

[stefan]

Re: ERG anyone???

Stefan, just to be clear, I meant buying the shares off-market, not the rights (which has closed).

Ah, I see. Ok, then GP's links will be of help to you.

Kooka, are you sure about that NTA?

They have stated that NTA on their news release regarding the new issue of shares. They estimate the NTA to be at 39 cents.

But look how it traded today! One could have made an easy 5 cents with it. Maybe it was kooka buying like crazy?

Happy trading

Stefan

 

[kooka1956]

Re: ERG anyone???

Closed at 30.5 cents today . A nice little trade in this stock today . I have been following this stock for a number of years and with 88% of shareholders taking up their entitlements most seem to have confidence in their company . At any rate the funds should give them plenty of working capital to get over the hill. Incidentaly their are two types of renunciation forms, Security renunciation for transfers between brokers, (yellow colour ) and standard renunciation for transfer of rights between individuals .( gold colour) These can only be used prior to rights issue closing . As new issue has closed a white standard transfer needs to be used for transfer of shares between individuals .Regards,

 

[stefan]

Re: ERG anyone???

nice little trade in this stock today . I have been following this stock for a number of years

And what is your outlook on this one? Would be interesting to hear from a guy who kept an eye on it for so long.

Thanks and happy trading

Stefan

 

[kooka1956]

Re: ERG anyone???

The raising of this $67million basicaly gets rid of their debt , but also appeases their major funds supplier, "The Ingot Facilities" as mentioned in their prospectus . Working capital of $26 million is now available plus a drawdown on the above facility can be made if required . I would say that sufficient funds are now held to complete design and testing , supply and install most of the major projects that are in the pipeline,and as these are completed funds will start rolling in from operations . I am expecting we have just passed the low point for the stock and profits to be declared in the not too distant futue . Even this current financuial year . Whether dividends will be declared is another thing, as a percentage of future profits will need to be retained for future contracts . regards.

 

[stefan]

Re: ERG anyone???

Thanks Kooka

I'll keep an eye on this one. Will be interesting to see if it can really keep the 30cents level or if we will have more of those strange selling moments over the next few days. I take it you regard anything below 30 cents as a bargain.

Happy trading

Stefan

 

[kooka1956]

Re: ERG anyone???

I have increased my holding in the past few days , and look forward to any further aberations regards kooka.

 

[stefan]

Kooka,

I have one main reason why I'm cautious with ERG. If I was to get shares at 20cents with its value currently at 30cents, I'd be tempted to sell out. So my idea is that this will happen and that we may see a few pullbacks to the 25 cents range from which it may recover quickly each time, but I somehow think that we will see selling activity soon.

Does that sound too far fetched?

Happy trading

Stefan

 

[kooka1956]

I think most of the selling has already happened . Anybody who didn.t want to increase their holding would have sold the rights rather than take up the new issue and then sell when scrip was issued. Regards KOOKA

 

[stefan]

Re: ERG anyone???

Anybody who didn.t want to increase their holding would have sold the rights rather than take up the new issue and then sell when scrip was issued

Was the recent issue only to existing shareholders?

Happy trading

Stefan

 

[kooka1956]

Re: ERG anyone???

The recent new issue was for shareholders only , although about 12% of new issue shares will be taken up by the underwriters , who may or may not be current shareholders . In other words 88% of new issue shares were taken up by existing sharehoders which is a pretty good indication of the solid shareholder base that they have . Then again who wouldn,t take up a issue like this , issued at such an enormous discount at the then market price .Regards,KOOKA