Global Ferronickel Holdings Inc (PSE:FNI) last traded price as of 31 March 2015 is 1.84, a huge drop from 2.62 when I wrote about $FNI stock on top 5 reasons why FNI is a bagger stock.
This stock is the “talk of the town” from twitter and FB fora and groups. The following factors could be some reasons on the negative sentiment of the stock:
1. The controversy of the CEO/President Joseph Sy citizenship has initially contributed to its negative sentiment of the stock although it was clarified and resolved in the disclosure.
2. Termination of the Memorandum of Agreement as per disclosure between the Company and GHGC Metallic Ore Resources, Inc for the acquisition of 100% of the total outstanding capital stock of Ferrochrome Resources, Inc (FRI). There was some discussion from sources, which is not confirmed by the Company that since chromite wasn’t going to be earnings accretive for the next few years, FNI excluded it because they wanted only instant cash generating mines inside FNI.
If Joseph Sy who is the President of FNI is also the Chairman and President of FRI, then there must be good reason why FRI is not included in the acquisition of FNI.
3. The delayed follow-on offering which is supposedly scheduled in March 2015 has also brought negative sentiment of the stock.
4. Another contributing factor in the drop of the stock price is the declining nickel prices in the world market which is a valid indicator of the negative sentiment of the stock. This is a major risk in investing nickel stock due to volatility of nickel prices.
5. The negative perception against the insiders who are majority shareholders ( these substantial Shareholders: Huatai Investment Holding Pty Ltd.; Sohoton Synergy Inc; Regulus Best Nickel Holdings, Inc.) who allegedly take advantage of their billions of shares acquired at 0.38 per share. The broker “109” usually dumps shares when the stock price rises especially there’s positive disclosure, at the expense of the public investors. It was allegedly facilitated by broker “109”.
If item 5 continues, even how good the stock fundamentally, these substantial shareholders can dictate the trend in the market. There was a big joke saying that FOO will not happen because there was already a pre-FOO happening which was being sold at a discount by the Company through broker “109”. In just a span of 2 months, broker “109” had sold almost 3.5 billion worth of shares.
We might be surprised on why “109” is selling billions of shares to the public. Sohoton Synergy Inc is the largest shareholder of FNI, directly owned around 4.13 billions worth of shares or approximately 23.66% of the Company’s issued and outstanding share capital. However, as per disclosure dated March 31, 2015, Sohoton Synergy Inc has left only with 8.23% of the direct outstanding shares. Sohoton through broker “109”, has sold its shares to the pubic to have more liquidity and for some other reasons.
According to PSE rules, if there is issuance or transfer of shares or securities, private placements, etc, done and fully paid for within 180 days prior to the start of the offer period and the transaction price is lower than that of the offer price in the public offering, all shares or securities availed of shall be subject to lock up period of at least 365 days from full payment of the aforesaid shares.
If you remember, there was block sale facilitated by broker “109” at P3 per share. One of the investors who bought 30M shares at P3 on March 30, 2015 could be subject for lock up period within 365 days as one example. Are you wondering and confident that FOO is above P3 per share?
Below shareholders are subject for lock-up period, which means they could no longer sell at the public during the start of follow-on offering:
Take note that Sohoton Synergy Inc has initially acquired 23% of the outstanding shares, then reduced to 11.35% and just recently had left only at 8.23% of the outstanding shares as of 31 March 2015. This shareholder is trying to take advantage to sell to the public reducing its shareholdings for whatever reasons, thereby increasing liquidity in the market. While these shareholders are not yet prohibited to sell their shares to the public prior to follow-on offering, an opportunity for these big sharks to position themselves. After acquiring CMT at par value, cold cash is precious. We do not know the previous stock holders whose existing shares acquired at par value are joining the selling pressures.
Once schedule of FOO has been announced, these principal shareholders are no longer allowed to sell shares to the public until the end of 365 days, or after only 1 year. This is called their lock-up period.
The over-supply of these shares in the market due to reduction of shareholdings of Sohoton Synergy Inc has contributed to the drop of the stock price where the selling pressures are just too strong which is influenced by broker “109” thru Sohoton Synergy Inc. As the stock price becomes yummier, the so called “gurus” and “experts” are celebrating their accurate prediction. Public investors are lucky if they have acquired the stock below P2 per share since there will be very huge upside potential of the stock in the near future.
Without looking at the technicals of the stock, taking an average price-to-earning ratio of $NIKL and $MARC, as per below table:
We can take an average P/E of (PSE:NIKL) and (PSE:MARC), which is 12.
Using the net income of FNI at 4.8B in 2014 (assuming that FNI has earned only 4.8B for full year 2014 instead of 6 months), EPS is 0.66. Fair value of FNI is around P7.92 per share. This is too big to imagine while the stock is trading at a bargain price of 1.84 per share as of March 31, 2015. What if the stock drops to 1 to 1.40 per share as dictated by “market maker” since shares are acquired at 0.38 per share? I expect the selling pressures by broker “109” will tone down if shareholdings of Sohoton Synergy has been adjusted already to its desired level end March 2015.
The only hindrance which may lead to its continued downtrend or range trade is the negative sentiment of the stock due to the investors’ anticipation that 2015 earnings may drop as prices of nickel is declining in the global market. However, the price would normalize as we can see the narrowing supply of nickel in the world market while nickel ore ban export imposed by Indonesia is not lifted yet. Besides, FNI has a 2015 production target of 6.5 to 7 millions WMT per annual shipment rate in the near to midterm from Cagdianao mine which is the existing mine sites.
FNI has mined 5.195 millions WMT in 2013, 5.408millions WMT in 2014 and target of 6.5 Millions WMT in 2015 excluding the newly acquired INC and future acquisitions.
Investing in $FNI is indeed not for faint-hearted.
Disclaimer: This article is for information purposes only. There are risks involved with investing including loss of capital. The information provided in the website is only an opinion of the author and does not constitute as legal advice, research or recommendation to buy or sell any securities. The author of this article may be biased as he has accumulated shares of this stock.