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If you’d spent £3k on JD Wetherspoon stock 4 years ago, this is what you’d have today

In 2016, JD Wetherspoon (LSE: JDW) traded below 600p. If youd bought 3,000 worth of stock back then at 600p (500 shares), youd currently have over 8,000 as Wetherspoon shares now trade above 1,600p.

In an industry where pubs have been hit hard, with the closures of sites well-documented, Wetherspoon appears to be doing a roaring trade against the tide. But why?

Well, it benefits from economies of scale. The business is nationwide and there are very few places without a single Wetherspoon pub. It has well and truly conquered Britain, and that gives it a lot of clout. When Wetherspoon turns up looking for a new supplier, the company can be aggressive on margins because of the sheer volume it will look to order. This means cheaper prices for customers, and cheaper prices mean the business proposition is more attractive for price-conscious consumers. Its a virtuous circle, as more customers mean the company can be even more aggressive on margins!

It caters for all times of the day

This is a key reason for Wetherspoons success. Unlike many pubs, its units are open almost around the clock. It starts with breakfast, with several options for food and hot drinks, and continues through to lunch where it runs its burger and a beer offer. The success of this means the business has expanded it to a pizza and a beer too, and the company has invested in its food offering to make this not only attractive on price, but attractive to eat.

Wetherspoon is also a force in the evening with more dining offers, and a wide drinks selection. By keeping clients coming in throughout the day, and keeping them in the pub for longer, the units are collecting more revenue than some of its competitors.

Focusing on its USP: service

Wetherspoon pubs are often well-staffed meaning waiting times are minimal. This is important, because if a client experiences a long wait time then they are less likely to re-visit and they also might spread negativity telling friends and family about their experience.

The company has made a great stride in this area with the release of the Wetherspoon app, which allows clients to purchase orders through the app and have staff bring this to the table. This has the benefit of automating the ordering process, saving Wetherspoon employees time, but it also frees up space at the bar and reduces waiting time.

Stable growth

In the companys last results, like-for-like sales were up 6.8% on the prior year in 2018. Thats good, because unless a company can grow its sales in its existing units, it will struggle to maintain growth.

Free cash flow per share also grew to 92p from 88.4p. Growth in free cash flow has consistently been a prominent feature for historic stock market winners, and so if we want to find more stocks that can increase like Wetherspoon it makes sense to check that our investments are generating healthy and increasing levels of free cash flow.

The high-calibre small-cap stock flying under the Citys radar

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£5k to invest? Here are 2 FTSE 100 dividend stocks I’d buy for 2020

After the general election last month, shares in British Land (LSE: BLND), one of the largest real estate investment trusts in the UK, surged as investors rushed to take advantage of a rare opportunity.

For much of the past 12 months, shares in this real estate investment trust have been trading at a deep discount to its underlying net asset value due to political and economic uncertainty. At one point, the discount was more than 40%.

However, as uncertainty has started to dissipate, the market has re-rated the stock. It is up around 35% since its 2019 low of 468p printed back in the middle of August.

Still cheap

But despite this impressive rally, shares in British Land still look undervalued. Indeed, at the time of writing, the stock is trading at a price-to-book ratio of only 0.76, implying theres a further upside of 32% from current levels before the stock reaches fair value.

Unfortunately, theres no guarantee that shares in British Land will reach this level. That said, in the past, the stock has traded at a premium to net asset value, so I think it is highly likely that the company will trade back up to book value at some point.

In the meantime, investors can look forward to a dividend yield of 5%. As a real estate investment trust, British Land has to distribute the majority of its rental income to shareholders every year to maintain its favourable tax status. Management can also top up the rental income distribution with capital gains on property development. This means that British Land is a highly reliable income stock.

It is this combination of capital growth potential coupled with British Lands 5% dividend yield that makes me think this stock could be a great addition to a portfolio in 2020.

Diversified income

I think it could also be worth keeping an eye on general insurer RSA Insurance (LSE: RSA) this year. It is one of the largest insurance companies in the UK, offering everything from home insurance to business insurance through its direct-to-customer brands. The group also has a presence in Scandinavia and Canada, giving it diversification away from its home market here in the UK.

Several years ago, RSA ran into some problems, which forced the business into a loss and cost the previous management team their jobs. Former RBS CEO Stephen Hester was parachuted into the top position to take control, and he has done a fantastic job since then. City analysts are expecting the group to report a net profit of 430m this year, up 24% from 2018. On this basis, the stock is trading at a forward P/E of 13.9, falling to 12.1 for fiscal 2020.

As well as the attractive valuation and growth potential, the stock also supports a dividend yield of 4.2%, rising to 5% for fiscal 2020 according to current projections. Dividend cover of 1.7 tells me that this payout is exceptionally safe for the time being.

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My top 3 FTSE 250 growth shares for 2020

As one of the UKs top up-and-coming wealth managers, Brewin Dolphin Holdings (LSE: BRW)has a tremendous opportunity in front of it.

The demand for wealth management services across the UK, and indeed around the rest of the world, is only growingas investors and savers wake up to the value wealth managers can add to any investment strategy.

Growth ahead

According to research from PWC, the industrys penetration rate (managed assets, as a proportion of total assets) will expand from 39.6% in 2016 to 42.1% by 2025.

With this being the case, if Brewin can keep doing what it has been doing for the past five years,I think the stock offers the potential for substantial capital gains in the years ahead.

Over the past five years, Brewins net profit has grown at a compound annual rate of 50%, and City analysts expect the company to report earnings growth of 29% in its current financial year and an increase of 10% for 2020.

That puts the stock on a forward P/E of 15, in line with the asset management industry sector average. In addition to the companys growth potential, shares in the wealth manager currently supporta highly attractive dividend yield of 4.7%. Put simply,theres a lot to like about this investment.

Booming market

Im also optimistic on the outlook for Wizz Air (LSE: WIZZ). Wizz is one of Londons most successful companies. Net profit has grown at an average of 27% per annum for the past six years and the stock has more than doubled investors money over the previous three.

As the market for low-cost air travel continues to boom, Wizz has the backdrop it needs to maintain its explosive growth rate. To capitalise on customers insatiable demand for cheap air travel, Wizz is planning to nearly triple the size of its fleet and go intercontinental by 2028. The firm has 270 planes on order at the moment with more in the pipeline.

City analysts are expecting Wizz to report earnings growth of 19% this year, followed by an increase of 24% in 2021 as new planes arrive and the company opens up new routes.

A forward P/E of just 13.3 seems to undervalue the company, considering managements long-term growth plans.

Property growth

Another company that has an excellentgrowth track record is student accommodation manager Unite (LSE: UTG).

Unite has managed to make the slow and steady business of managing student accommodation exciting. Over the past six years, earnings per share have grown at a compound annual rate of 15%, and book value per share has increased at 17% as Unite has reinvested rental profits back into operations to fund the development of new buildings. Over the same time frame, the companys dividend to investors has grown tenfold.

Considering this track record, Im excited to see what the future holds for Unite. Demand for high-quality student accommodation across the UK is only growing, and the firms size gives it a key advantage in this booming market.

City analysts seem to be expecting big things as well.They are expecting the companysfull-year 2019 dividend to leap a staggering 31% thanks to growth in rental income. A further increase of 19% is projected for 2020.

If the company makes good on these projections,I think theres plenty of potential for capital growth here as income investors rush to take advantage of Unitesgrowing distribution.

A Growth Gem

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3 shares I’d buy for the new decade

The FTSE 100 rose 12% during 2019, although that was less impressive than the growth of indexes elsewhere. With the UK still cheaper than many other stock markets, here are three shares Id buy and hold.

Reliable business model

Electricity distributor National Grid (LSE: NG.) is a safe and reliable company, I believe. It doesnt have the exciting, fast growth of companies operating in emerging markets or new industries. But it has other appealing qualities and, of course, a generous dividend.

Demand for electricity in the US and the UK isnt going away. Operating in stable countries makes the firm less risky and the US is now National Grids biggest market, accounting for 44% of its 40bn worth of assets.

The regulated nature of most of its business gives the company good visibility on its earnings and a monopoly on electricity distribution means it can take on the debt it can afford.

The dividend yield is 5% and the aim is to grow it at least in line with RPI Inflation, so a cut is unlikely. It means shareholders are set to be well rewarded for many years to come.

Transitioning to a new model

Intercontinental Hotels (LSE: IHG) operates brands including InterContinental, Holiday Inn, and Crowne Plaza, and has nearly 5,800 hotels across 100 countries.

The group used to build and run hotels, which used up a lot of money and required borrowing. In recent years the group has moved to a slicker, more profitable hotel management model, which means running hotels for landlords and franchising. This is helping it expand quickly and is driving up margins.

The new model and its benefits havent gone unnoticed. Like other higher-growth, asset-light companies, Intercontinental trades on a bit of a premium to the average for the FTSE 100. Its P/E ratio is 24. I think it has good long-term prospects and the price isnt too high for the quality of the business.

The downside is that the violent clashes in Hong Kong are currently affecting business. That shows no sign of stopping, but thinking about the long term, I believe the hotel manager looks in great shape.

A model for growth

Another quality company I like is the engineering group Avon Rubber (LSE: AVON) that produces military equipment and products for dairy farmers. As strange a mix of product offerings as that may sound, its working well for shareholders.

The group is the sole source provider of general purpose masks, tactical masks, powered air systems and tactical self contained breathing apparatus across the entire US Department of Defense, showcasing the quality of its customer relationships and products.

Acquisitions and a focus on product development are, I think, two drivers for the share price over the next decade. Avon Rubber does both very well, which is pushing up earnings and the dividend. Earnings have risen from 83.8p in 2017 to 91.7p in 2019, while the dividend has risen from 12.32p to 20.83p over the same timeframe.

Id expect further growth from this company and see the P/E of 23 as a price worth paying for what I see as a great company.

A top stock with enormous growth potential

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Not only does this company enjoy a dominant market-leading position

But its capital-light, highly scalable business model has been helping it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns in fact, in 2019 alone it returned a whopping 151.1m to shareholders in dividends and buybacks!

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We think now could be the perfect time for you to start building your own stake in this exceptional businessespecially given the two potentially lucrative expansion opportunities on the horizon that our analyst has highlighted.

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Think you don’t earn enough to save and invest? Read this now

Its never been as easy as it is today to start investing. Over the past few years, a whole range of companies have launched with the single goal of making investing and saving easier. As such, you can now get started with just a few pounds a month.

A few pounds a month

Most online stockbrokers now offer a regular investment plan. The lowest monthly requirement is only 10, and most brokers provide reduced trading rates for monthly investors.

Selftrade, for example, charges a dealing fee of 1.50 for regular investments into listed securities. Dealing in mutual funds, unit trusts and OEICs is free.

Online brokerage Freetrade doesnt charge any dealing fees for trading individual securities. All you need is a phone and a few pounds to get started investing. Moreover, if you refer a friend to the Freetrade app, you could get a free share worth between 3 and 200.

But if you dont like picking your own investments, online platform Wealthify can construct and manage a portfolio for you. Theres no minimum contribution to the platform and savers can choose to set up a regular direct debit or stick with one-off deposits.

Such platforms allow savers to build an investment portfolio with relatively small contributions. This is important, because the sooner you start saving, the more time there is for the power of compound interest to work its magic on your hard-earned cash.

Compound interest

Compound interest is the process of your money making money. This is one of the most powerful tools investors have to create wealth over the long term. Therefore, its vital to get your money working for you as soon as possible.

You can do this today with a low-cost dealing account and a simple passive tracker fund. The FTSE 100 and FTSE 250 both offer attractive investments for savers who are looking to make a little go a long way.

For example, over the past few decades, the FTSE 100 has produced an average annual return for investors in the region of 7%. At this rate of return, a small initial investment of just 10, and subsequent monthly deposits of a similar amount, would yield a savings pot worth a 12,350 after three decades.

After five decades of saving, these small regular contributions would be enough to build a pot worth 55,000, according to my calculations.

A large savings pot

These numbers show just how straightforward it is to build a substantial savings pot with relatively small contributions every month. Even if you can only afford 10 a month, its sensible to start saving for the future today.

The sooner you start putting money away, the sooner compound interest can start working its magic. And the more time you give compound interest, the easier it becomes to make money.

Theres a double agent hiding in the FTSE

We recommend you buy it!

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It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think its offering an incredible opportunity to grow your wealth over the long term at its current price regardless of what happens in the wider market.

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Forget the Royal Mail share price, I’d go for this 8% FTSE 250 dividend instead

At first glance, the Royal Mail (LSE: RMG) share price looks like an excellent income investment. At the time of writing, the stock offers a prospective dividend yield of 6.4%, compared to the broader market average of 3.5%.

However, when you dig into the companys prospects and cash flows, it looks as if this distribution is on shaky ground.

Falling earnings

Since 2016, Royal Mails net income has halved, falling from 325m in 2015 to 175m for 2019. City analysts are expecting this trend to continue for the next two years. Analysts have pencilled in a 55% decline in earnings for 2020 and 31% for 2021.

Based on these projections, Royal Mails dividend cover looks set to fall from 1.4 times in its current fiscal year to under one by 2021. A dividend cover ratio of less than one implies that the company will not be earning enough money from its operations to cover the dividend. Thats a big red flag.

If Royal Mail does not have enough cash coming in from operations to meet its projected dividend, then the company will either have to sell assets or borrow money to meet the payout. The next option is a dividend cut.

Thats why I think investors would be better off avoiding the Royal Mail share price for the time being.

Cash cow

Instead of Royal Mail, Id buy FTSE 250 income champion PayPoint (LSE: PAY). This year, PayPoint is expected to distribute 84p per share to investors in dividends, giving a yield of 8.3% on the current share price.

Its dividend is also uncovered by earnings per share, but there are two reasons why I believe this distribution is more secure than that of Royal Mail.

Firstly, the groups balance sheet is much stronger. At the end of its 2019 financial year, PayPoint reported a net cash balance of 38m on its balance sheet, compared to Royal Mails net debt position of 320m.

Secondly, there is its cash generation. For fiscal 2019, the company generated 50m of free cash flow from operations, roughly covering its dividend to investors. To put it another way, after spending 11m on capital projects, the firm returned all excess cash to investors.

High quality

Another reason why I like PayPoint over Royal Mail is the fact that the company is what I like to call a high-quality business.

Over the past six years, the group has produced an average return on invested capital (a measure of profit for every 1 invested in the business) of 64%, compared to the market median of just 4%!

This number tells me that PayPoint is a highly profitable enterprise. As the company provides the vital service of payments processing for tens of thousands of businesses and customers around the world, I reckon this should continue for many years to come.

Thats why Id buy this 8.3% yielder over Royal Mail any day.

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Heres your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this out-of-favour business thats throwing off gobs of cash!

But heres the really exciting part

Our analyst is predicting theres potential for this companys market value to soar by at least 50% over the next few years…

He even anticipates that the dividend could grow nicely too as this much-loved household brand continues to rapidly expand its online business and reinvent itself for the digital age.

With shares still changing hands at what he believes is an undemanding valuation, now could be the ideal time for patient, income-seeking investors to start building a long-term holding.

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4 ways I plan to increase my savings in 2020

Many people use the beginning of the year to set out their personal goals for the 12 months ahead. Its also a good idea to do the same for your finances.

With that in mind, today Im going to explain the four ways I plan to increase my savings in 2020.

Switch banks

First of all, Im planning to make the most of the current offers on the market for savers looking to switch bank accounts.

Several high street banks are currently offering cash rewards for switching current accounts, and some of these also providelinked savings accounts withattractive interest rates,as well as cashback on spending.

For example, First Directis currently offering new customers 100, and you can also open a linked 2.75% regular saver account.

Open a LISA

As well as switching bank accounts,Im also going to open another LISA in 2020.

Introduced several years ago, LISAsare designed to help first-time buyers and pension savers.For every 1,000 you contribute, the governmentgives you a top-up worth 25% or 250.You can put away a maximum of 4,000 a year, providing a potential bonus of 1,000 of government cash.

Open a SIPP

LISAsare not the only product that offers government cash bonus.Any contributions to a SIPPalso receive tax relief at your marginal tax rate.So for basic rate taxpayers, for every 80contributed, the government will top up yourcontribution by 20.

You can onlywithdraw money from a SIPPafter the age of 55,so it is not suitable for everyone.But it is a great tool to use if you are struggling to save for retirement.

Start investing

All of which brings me to the fourth and final strategy I plan to use in 2020 to increase my savings and that is to invest more. 2019 was a bumper year for stock markets around the world, and many analysts believe that barring a sudden economic shock, 2020 could be a good year for investors as well.

In the current interest rate environment,investing is a great way to get your money working harder.Over the past 110 years, UK stocks have produced an average annual return in the region of 5.5% after taking into account the impact of inflation on returns.At the time of writing, even the bestsavings account on the market offers a negative real return (after taking into account the impact of inflation).

One of the best ways to take advantage of these returns without spending hours analysing individual companies is to buy a low-cost market tracker fund. A FTSE 100 or FTSE 250 tracker fund is an excellent way to track the market at a low cost. Most tracker funds charge less than 1% per annum in management fees.

When combined with the tax-free cash available with LISAs and SIPPs, these low-cost funds can be a potent tool. For example, over the past 10 years, the FTSE 100 has produced an average annual return for investors in the region of 7%.

By opening a LISA and taking advantage of the governments full 1,000 cash bonus, this suggests that you could grow your initial 4,000 investment into 5,350 in the space of just 12 months.

A top income share with a juicy 6% forecast dividend yield

Income-seeking investors like you wont want to miss out on this timely opportunity

Heres your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this out-of-favour business thats throwing off gobs of cash!

But heres the really exciting part

Our analyst is predicting theres potential for this companys market value to soar by at least 50% over the next few years…

He even anticipates that the dividend could grow nicely too as this much-loved household brand continues to rapidly expand its online business and reinvent itself for the digital age.

With shares still changing hands at what he believes is an undemanding valuation, now could be the ideal time for patient, income-seeking investors to start building a long-term holding.

Click here to claim your copy of this special report now and well tell you the name of this Top Income Share free of charge!


Forget the National Lottery! I think this could be an easier way to get rich

If you play the National Lottery, you have a one in 45m chance of winning the jackpot.

With odds like that, youre more likely to lose money than win a multi-million-pound fortune over a lifetime of playing. You have a higher chance of winning in a casino than you do with the Lottery.

With that being the case, if you want to get rich, Id avoid the National Lottery altogether and buy stocks instead.

Investing for the future

Some people think that investing in the stock market is gambling. But thats not the case. Buying stocks means buying a part of a fully operational business, which is hopefully generating profits that should rise over time.

Thats nothing like gambling. Indeed, the National Lottery is technically classed as gambling as theres no guarantee of a win.

Whats more, if you invest in the market using a fund or investment trust, youre buying a basket of stocks, managed by professional investors, which substantially increases your chances of making a profit over the long term.

Passive tracker

One of the most straightforward ways to invest in the market is to buy a passive tracker fund.

A FTSE 100 or FTSE 250 tracker allows investors to track the market for less than 1% in management fees every year. When you buy the fund, theres no need to worry about picking stocks or rebalancing the portfolio. All you need to do is sit back and let the market work its magic.

According to my calculations, over the past two decades, the FTSE 250 has produced an annual return of around 11%. At this rate, it would take just 6.5 years to double your initial investment. This rate of return is even more impressive when you take into account the fact that you might not win anything on the National Lottery over the same time frame, even if you played twice a week for six years.

It all adds up

Getting rich with the FTSE 250 takes time, but it is straightforward. My figures tell me that an investment of just 200 a month for 30 years would grow to be worth 570,000, assuming an average annual rate of return of 11%.

On the other hand, a National Lottery player,who plays five numbers twice a week at the cost of 2 a play,would spend a total of 31,200trying to win the jackpot. Thats a difference of 601,200 over three decades.

The bottom line

So overall, while the National Lottery might seem like an easy way to get rich, in reality, you are more likely to miss out on a fortune than win one.

As a result,I believe that most savers would be better off investing their money over the long term rather than gambling their hard-earned savings away on a game with a one in 45m chance of winning.

Theres a double agent hiding in the FTSE

We recommend you buy it!

You can now read our new stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think its offering an incredible opportunity to grow your wealth over the long term at its current price regardless of what happens in the wider market.

Thats why theyre referring to it as the FTSEs double agent.

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Click here to read our presentation.


Is the NMC Health share price a buy?

At the end of December, shares in NMC Health (LSE: NMC) crumbled after the well-known short-selling hedge fundMuddy Waters published a short dossier on the company.

Muddy Waters claims that NMC has been misleading investors on several fronts, including potential overpayments for acquisitions, inflated margins and understated debt.

The hedge fund is also worried about the companys corporate governance, or lack of it. A small group of UAE-based billionaires controls NMC.

For its part, the healthcare company has refuted all of the accusations levied against it. The group issued a long rebuttal to the assertions shortly after Muddy Waters published its document. Management has also commissioned an independent review to reassure investors.

However, Muddy Waters has claimed that NMCs written rebuttal is misleading, and outright false in certain portions, and that independent reviews are usually exercises in whitewashing that provide little to no transparency and accountability.

A similar path

Muddy Waters attack on NMC has followed a similar path to the hedge funds attack on Burford Capital earlier in 2019.

In that case, the fund also issued a short dossier and then proceeded to accuse managers of misleading investors further when Burford published a rebuttal. But after creating a great deal of fuss at the time, the hedge funds attack has petered out over the past few weeks.

Will the same happen with NMC? At this point, it is difficult to tell. However, what we do know is that after recent declines, shares in NMC look cheap compared to its projected growth.

Growth at a reasonable price

The stock is trading at a forward P/E of 14.9 compared to its five-year average of 25+. City analysts are forecasting earnings growth of 26% for 2019 and 28% for 2020, which puts the stock on a PEG ratio of 0.5, suggesting that shares in NMC offer growth at a reasonable price.

That being said, while NMC looks cheap compared to its history, I dont think the valuation is low enough to make up for the uncertainty here.

In my opinion, one of the reasons why the stock dropped so much after Muddy Waters attack was its valuation. Before the attack, the shares were dealing at a forward P/E of nearly 30, a multiple that did not leave much room for error.

The stocks current forward P/E of 14.9 is more in line with the UK healthcare industry average of around 15.

The bottom line

So overall, at this point, I think it is difficult to tell if Muddy Waters accusations against the firm are correct or without merit.

Nevertheless,on valuation alone, Im not a buyer of the NMC share price at current levels because even after the stocks recent declines, I do not think it looks cheap enough to make up for the risks of investing here.

In other words, I think there are better places to invest your money in the current market that come with less risk and have more upside potential.

Theres a double agent hiding in the FTSE

We recommend you buy it!

You can now read our new stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think its offering an incredible opportunity to grow your wealth over the long term at its current price regardless of what happens in the wider market.

Thats why theyre referring to it as the FTSEs double agent.

Because they believe its working both with the market And against it.

To find out why we think you should add it to your portfolio today

Click here to read our presentation.


Could you double your money with Sirius Minerals in 2020?

2019 was a truly dire year for the Sirius Minerals (LSE: SXX) share price, which collapsed after the failure of the firms $3.8bn stage two fundraising plan.

However, this story isnt over yet.

Sirius says that it has enough cash to last until April. The company has produced a new financing plan thats designed to contain the risk faced by future financing partners. And I think we can be pretty sure that CEO Chris Fraser has spent his Christmas working hard to find new sources of funds.

Even a sniff of a financing deal would be likely to send the shares rocketing higher. In such a scenario, I wouldnt be surprised to see the Sirius share price double overnight.

Should we be buying SXX stock in anticipation of a recovery? Heres what I think.

Will the government rescue Sirius?

My colleague Rupert Hargreaves recently suggested that Sirius might be able to secure some financial support from the new government, which has promised to spend more on infrastructure.

However, the previous government refused to support the project, so I wouldnt get too excited about this prospect.

Finally, even if the government does provide some support, this wouldnt necessarily be enough to save existing shareholders from being diluted by new strategic investors.

Is the new plan better?

The key change in Mr Frasers latest financing plan is that funding for the shaft-sinking activity which the company says is the riskiest part of the project has been separated from funding for the mine build.

The plan now is to raise $600m to complete the mine shafts and then raise a further $2.5bn to fund the build-out of the mine.

One problem with this is that this new plan is likely to delay the date at which the project is fully funded, potentially by several years.

For shareholders, this is a serious concern. Until funding is secured, theres no way to be sure that the company wont run out of cash or be forced to sell a stake in the business to raise the funds needed to complete the mine. In either scenario, I think existing shareholders would be likely to face dilution and large losses.

Remember, the mine might eventually be built by different owners, leaving existing shareholders with nothing.

Should I buy Sirius Minerals shares?

Before investing in a mining project like this, Id want to see proven market demand, predictable pricing and a short-term path to positive cash flow and profitability. Sirius Minerals offers none of these, in my view. The mine is expected to take around five years to complete and the firms POLY4 fertiliser has not been sold in such large volumes before.

Debt investors seem to share my view of the risks involved. Even the promise of a 15% interest rate wasnt enough to persuade them to lend $500m to Sirius earlier this year.

I think there are only two likely outcomes for existing shareholders. One is that the company will go into administration, sending the share price to zero pence. The other possible outcome is that a new financing partner will be found who will demand a significant equity stake in the project, diluting existing shareholders.

For these reasons, I think that Sirius remains much too risky to consider as an investment.

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Femi Ogunshakin Managing Director
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