Time to buy Echo Energy as investors dust off disappointment of EMS-1001? (ECHO)

By James Moore


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From a chart perspective, the potential upside is compelling but there are of course always risks

The Echo Energy (LSE:ECHO) share price is still in the doldrums at around 4.4p after plummeting 50pc earlier this month on the news that the EMS-1001 location was not commercial. The company announced on Tuesday that is it utilising the results from EMS-1001 to refine a mechanical stimulation design for the ELM-1004 well and that seismic activities across Tapi Aike are well underway. The Seismic operation is progressing on schedule with the survey of the eastern cube of Tapi Aike now complete. Echo reports initial indications suggest the data quality is good and the survey will now move to cover the larger western cube.

As both the firm and its investors dust themselves off in the wake of disappointment from EMS-1001, the share price chart suggests the stock may have found its footing. The price has been consolidating just above 4p with the stock being caught by a trend line running from early 2018. Add in the trend line formed from the past couple of highs it is clear the price action is starting to coil.  A substantial increase in price is needed before this top trend line is even tested with it currently striking 8.3p. The gap down from 8.3p to 5.9p sits there like a gaping open goal, and should sentiment return with gusto, the hole in price action forms an obvious longer-term target for recovery. There’s another downward trend-line dividing the chart that also suggests resistance between 8-9p too. Nearer term, the 6p area is the initial target to beat. That’s still almost 40% upside from today’s price.

As you would expect, the Relative Strength Index (RSI) is screaming that the stock is once again very oversold. From a chart perspective, the potential upside is compelling but there are of course always risks. The Market Cap of Echo is currently around £21m and although the firm still holds a decent stash of cash, it has debt of around £11m and a basic monthly cashburn of over £500k. With revenues low, seismic underway, and drilling planned for later in the year the company will likely need to replenish its bank balance at some point. I believe sentiment is likely to return to some degree ahead of any raise as investors jostle for position ahead of drilling in the second half of the year, but its something to bear in mind. In the meantime, I wouldn’t be surprised to see a steady climb to that first 6p target if the current consolidation holds.


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Author: James Moore

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

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