Ouch! Last week’s flutter, the water-cleansing minnow Phoslock Water Solutions (ASX code PHK) suddenly dropped more than 12 per cent, just two days after the Punter paid $1250 for a fistful of the things.
That fall was sparked by a scary quarterly report released on January 31, which showed the company had burned $652,000 during the three months and had only $353,000 left in the bank at the end of December.
Worse, it is predicting that the haemorraging of cash will almost double to $1.26m in the current three months.
The Punter is wondering if the company should be renamed Phishock – a shock stock and potential phizzer.
In response to a number of calls from alarmed investors, the company rushed out a “clarification” the next day. This combined the results for the six months to the end of December, pointing out that sales were up 30 per cent to a record $1.9m and cash receipts were up 55 per cent to $1.7m. Inventory purchases were up 85 per cent to $1.7m, which is understandable given that orders on hand are now “in excess of $5m”.
The Punter is wondering if the company should be renamed Phishock – a shock stock and potential phizzer.
Phoslock expects to complete these orders by the end of June, and to add additional orders in most of its key markets. It “believes that China is poised to deliver substantial sales”.
The Punter can hear his granny muttering “promises, promises”, and he knows that if she had ever been foolish enough to buy into PHK she would now be cutting her losses.
However, the Punter notes that Phoslock has delivered on its earlier forecast of increased sales in the first half, and it is normal for cash flow to be tight when a company is expanding rapidly.
The market for PHK is very thin – some days the shares are not traded at all. The day of the big price drop, there were only 29 trades, totalling less than $70,000.
Increased sales should generate extra cash, at least in the final quarter, and the company has a $1m short-term borrowing facility to fall back on. Nevertheless, a fundraising share issue seems unavoidable.
The Punter, murmuring “in for a penny, in for a pound”, has bought another 1000 PHK. Don’t tell his granny.
- The Punter has no financial qualifications and no links to the financial services industry. He owns shares in a number of companies featured in this column.
