What's Wrong With Geodynamics?
- Things seem to be going from bad to worse for alternative energy play Geodynamics - February revealed a large interim loss and S&P removed the stock from the ASX300 - Investors appear in particular concerned about rapid cash burn
By Rudi Filapek-Vandyck
Prior to January 2008, owning shares in alternative energy play Geodynamics ((GDY)) may have seemed like a good idea. Since then, however, the price chart shows one, long and persistent loss of value. This month, the shares fell below 40c which is not only a long way off from the $2 recorded more than three years ago, it is also an all-time low. Odd, as one would have thought that at times of peak oil speculation and elevated energy prices, an alternative such as Geodynamics would only gain in attraction?
A recent management presentation to investors shows no shortage in superlatives: "Geodynamics offers the only available, base-load, low emissions, large scale geothermal project available in Australia" it reads on page one of the presentation. Elsewhere it states "world-class resource in the Cooper Basin", and "global leader with most deep hole, high temperature geothermal drilling experience in granites".
Clearly, something's missing in between the company's self-promotion and action in the share market. The answer might well be found in the February reporting season when Geodynamics' interim results for FY11 revealed a loss of $8.2m. In addition, the steadily eroding share price has now caused Standard & Poor's to remove the stock from the ASX300 index.
Both factors would have played their role in recent price action, but a research update by Morningstar (former Aspect Huntley) reveals securities analysts seem genuinely worried about the company's capital position. In short: Geodynamics appears to be burning through cash while there is no immediate prospect for making some. This is seldom a positive combination and it is thus no surprise Morningstar analysts rate the stock as "Avoid". Investors should note many smaller sized stockbrokers buy in Morningstar research and white label it under their own brand for clients and investors.
Morningstar points out the company has now been loss-making for ten consecutive years, a statement that comes with an exclamation mark from the analysts. Judging by their forecasts, there is no prospect for positive earnings whatsoever. Furthermore, the analysts note the decline in cash balances to $44m is "alarming". And if all that wasn't "alarming" enough, Morningstar analysts state "We are particularly concerned by the capitalization of exploration and development spending which we consider to understate true losses".
Last month's interim results revealed Geodynamics' interest income, the company's only source of income, had reduced by 26% to $1.5m.
No further guessing why the shares have landed at an all-time low. The market seems worried this company will be running out of money in the not too distant future.
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