Cash calls on shareholders were ten-a-penny a few years ago. Companies caught out with too much debt by the financial crisis and recession were desperate to shore up their balance sheets.
There was much speculation ahead of Tescos trading and strategy update last week about whether new chief executive Dave Lewis would bite the bullet and announce a rights issue to help shore up the companys weakening balance sheet and preserve an investment grade credit rating. Veteran retail analyst Clive Black put the odds at close to 5050.
In the event, no rights issue was announced. Lewis and finance director Alan Stewart made it clear they werent unduly concerned about a credit rating downgrade to junk (Moodys has subsequently done just that), and reiterated their stance that a rights issue comes below selective asset sales as a means to strengthen the balance sheet.
The noises from the directors, combined with a better-than-expected Christmas trading performance, suggest the odds of a rights issue have fallen markedly. I reckon that the better recent trading would have to prove to be a false dawn and sales reverse back deeply into negative territory for Tesco to ask shareholders to stump up cash.
The investing world haslong been divided about the viability of the game-changing business model of insurance-industry hydra Quindell. The company, which has literally scores of subsidiaries, was put together in a whirlwind buy-to-build spree by founder Rob Terry.
There are serious questions about the value of many of the acquisitions and about cash flows. At the backend of last year Quindells joint broker Canaccord resigned, and Rob Terry and two of his trusted lieutenants stepped down from the Board after making share sales (initially dressed up as buys) via an obscure US stock-sale-and-repurchase outfit.
Shortly afterwards, Quindells stand-in chairman announced that PwC had been engaged to review, amongst other things, the companys accounting policies and cash flow projections which may take until the end of February to complete.
In the meantime, Quindell has this week announced a massive miss on its operating cash flow guidance of an inflow of 30m-40m in Q4. The company is dependent on overdrafts with three banks; and, in a reversal of its buy-to-build strategy, is now looking to sell assets to raise cash.
No one knows how bad the situation at Quindell might be. What we doknow is that Rob Terry the architect of the empire and the person best placed to judge was selling most, and very possibly all, of his shares at any price he could get, just before and just after the independent review by PwC was announced.
As such, I reckon theres a high risk of goodwill writedowns, accounting policy revisions, and a rescue fundraising that will leave equity holders with little value just as happened at Terrys previous venture Innovation Group.
IGas, which listed on AIM five years ago, describes itself as a leader in onshore UK oil and gas exploration and production. The shares are currently trading at around 33p, valuing the company at a bit over 100m.
Highly-paid chief executive Andrew Austin is currently under fire over a deal with the same stock-sale-and-repurchase firm used by Quindells Rob Terry but a bigger issue is looming for IGas shareholders.
Last month, IGass joint house broker Canaccord issued a note saying that if the oil price were to stay around current levels for an extended period then the various covenants concerning the companys bonds may be tested notably, a liquidity covenant that requires IGas to maintain minimum cash of $15m.
The oil price was around $60 a barrel at the time Canaccord issued the note; its now nearer $45. If the oil price remains depressed, it looks highly likely that IGas will need to raise cash.
The oil price is just one of a number of macro factors that could make 2015 a tricky year for increasing your wealth in the stock market. But don’t despair!
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