AGTA – Agriterra – shorting idea

I have no position in this company, and I’m pretty much shooting from the hip on this one, so it is vital that you DYOR before taking a position.

I’ve written briefly about it before, but now it is looking increasingly like a good short idea. Here’s a brief description of the company activities:

Agriterra Ltd is a Guernsey-based company engaged in investing in agricultural and associated civil engineering industries in Africa.

OK. Big problem for starters: Africa. But there’s more, much more …

The company has a market cap of 33m, and has never made a profit. It is listed on AIM. Losses before tax have increased from 1.4m in 2011 to 4.3m in 2012. Yikes.

Here’s a brief extract from the latest I&E account:

  • 2012: gross profit margin: 13.8%. Operating expenses to revenues: 64.0%
  • 2011: gross profit margin: 23.6%. Operating expenses to revenues: 44.9%

Well, now wonder their losses are increasing. Not only are their gross profit margins decreasing, but their operating expenses are ballooning as a percentage of revenues.

Last year, the company reported 2.2m in net cash, and negative operating cash flow of 6.4m. On top of that, they had capex of 5.6m. I’ve checked back to 2008, and they have never generated any free cashflow. Expect a placing. The company has also featured on Proactive Investors – which I consider to be more bearish than bullish.

In 2008, they had 347m shares in issue. Today, they have 1060m in issue. That is a massive increase in shares in issue – a very worrying sign. According to Sharelock Holmes, the Piotroski score is 1. Ouch. According to Stockopedia, it’s 2. Disappointing either way. AGTA is also flagged up in the “Cooking the Books” and “Unholy Trinity” filters.

The company does have some institutional support: Gartmore, Oppenheimer and FIL appear as major shareholders. Still, institutional investors are far from infallible, so don’t overenthuse about the pros backing it.

Despite near-unanimous enthusiasm for AGTA on the bulletin boards, this seems like a highly toxic stock to me. We shall see.

I’ll warn you, though, that the share price could well increase from here on the back of positive RNS and newsflow. That’ll be before a placing, naturally.

I see this company as one which is selling a growth story, with rapid expansion of revenues, but little (perhaps I should say “no”) regard to profitability or shareholder value.

I’ll award myself one point if my intuition is correct.

Merry xmas to you all. And be careful out there.

3.23p

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About mcturra2000

Computer programmer living in Scotland.
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