Tower Resources has been thrust into the limelight as its share price has multiplied by over ten times. It has become a peoples favourite which makes it tough to ventilate our thoughts through analysis. Tower Resource’s industry major, joint partner Repsol are due to spud its first well from its future active drilling campaign starting in the walvis basin Namibia in or around 11th April 2014.
We suggest that investors address the company’s market capitalisation of £175m and question “How has a company with fundamental assets valued at significantly less coupled to their poor cash position manage to accelerate so far up the valuation chain?”
Namibia is speculated to be the next great frontier however commercial grade oil has alluded operators throughout Namibia. There is no doubt that the jurassic and triassic anomaly band rumored link to offshore South America presents prospectors with a very real “strike it rich story” however based on the lack of commercial oil as well as a pretty dire cash position we have to consider a “possible placing being worked right now” before the good times roll.
From a fundamental perspective, TRP have no revenues forecast in the years to 31st December 2013, 2014 or 2015. Pre-tax losses forecasted of $2.5m in 2013, $4.5m in 2014 and $6.2m in 2015. The balance sheet at 30 June 2013 showed cash and receivables of $4m and liabilities of $4m. Exploration assets are $8.9m and goodwill of $4m. Net assets stand just short of $13m. These numbers make it very difficult to justify a market cap of £175m.
Not only does the scorpion sting of equity dilution present a realistic level of fear, we consider the equidistant of overheated technicals purging retail investors pockets, the fundamentals do not stack up so regardless of any delay or setback we suggest that investors look to short/sell from 6.5p with a sub 5p target.