The current share price of Chariot Oil and Gas (LSE:CHAR) of 7.95p is a far cry from the highs of around 23.5p hit 6 months ago. While the discount appears to push the stock into bargain territory, it may be wise to err on the side of caution. As we suggested last month, a placing may be in the wings, and the last one wasn’t handled well – A placing price of 13p devastated the stock’s price and sentiment, giving a huge 36% discount to placees.
Chariot raised £15m in the placing in February, but by our sums, post-drilling Prospect S the company will have just $8.9 cash left, leaving it exposed in the event of drilling failure. It makes more sense to raise money now while the Market Cap is around £28m ahead of the drill. Waiting to do the fundraise during the build-up of anticipation for the drill is a possibility, however, sentiment remains damaged after such a giveaway placing price last time around burnt many shareholders.
There is, however, a bull-case – if Chariot is able to secure a farm-out agreement for one of its projects then the threat of a fundraise would be lifted and sentiment could return. If the concern over financing can be exorcised, an initial target from a technical point of view could be a gap fill to 11.5p – Of course, if the drilling of Project S is successful then and a test of previous highs could also be on the menu.
As it stands at the moment though, the stock price is being pinned down by a diagonal downward trendline and a Descending Triangle looks to be forming as the share consolidates. This is usually a continuation pattern and if the price breaks to the downside, potential areas to be tested include horizontal support at 7.1p, 6.45p, and a key level at 5.27p.