The Sirius Minerals (LSE: SXX) share price has been one of the biggest investing disasters of 2019, falling by nearly 85%.
Today I want to take a fresh look at Sirius and two other recent big fallers. Is a recovery likely in 2020?
Stuck in a hole
The failure of Sirius’s $3.5bn fundraising plan has forced the firm to scale back construction activity. If no new funding can be found, the business could run out of cash within months.
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After a strategic review, management have concluded that they could get the most risky parts of the mine built for $600m. A further $2.5bn of spending would then be needed to get the mine into production, but the hope is that this less risky financing would be easier to arrange.
My view is that no one will be prepared to lend Sirius any more cash without also taking an equity stake in the project. With the shares now trading at around 3.5p, I believe that any deal is likely to result in heavy dilution for shareholders.
Sirius is desperate for cash, so any potential lender can be expected to drive a hard bargain. I think existing shareholders will end up getting squeezed out. For me, this is a stock to avoid.
Accident-prone
The Tullow Oil (LSE: TLW) share price has fallen by more than 60% over the last year. What’s gone wrong?
I believe that this exploration-focused firm has become complacent and accident-prone.
This year we’ve seen 2019 production forecasts cut three times. Tullow’s flagship TEN and Jubilee projects in Ghana have suffered production problems. Estimated oil reserves have been cut by 30% on the Enyenra field.
We’ve also seen the planned $900m sale of a stake in the group’s Ugandan assets fall through.
The latest blow is that production guidance for 2021–2024 has been cut to just 70,000 barrels of oil per day. City analysts had been expecting a figure closer to 100,000 bopd.
Tullow’s CEO and exploration director have resigned. But the company still has net debt of about $3bn and shrinking cash flows with which to repay it. The shares are too risky for me. I’ll be staying away.
Nice cars, nasty shares
I’d happily go for a test drive in one of the latest models from Aston Martin Lagonda Holdings (LSE: AML). But I wouldn’t chance my luck with the firm’s stock.
The Aston Martin share price has fallen by more than 50% in 2019, as it’s become clear that this business is not really making much money. Revenue fell by 7% during the first nine months of the year, during which time the group plunged from an operating profit of £89.7m to an operating loss of £27.2m.
As with Tullow, the main risk for shareholders is debt. Aston’s net debt was £800m at the end of September, a figure that represented 5.5 times 12-month EBITDA (earnings before interest, tax, depreciation, and amortisation). I’d normally prefer to see this multiple below 2.5 times.
Management appear to have bet everything on the success of the forthcoming SUV model, the DBX. I’m not convinced. Debts are rising and lenders demanded a steep 12% interest rate for the firm’s latest financing.
Aston Martin has gone bust seven times before. I think it could happen again, and will be avoiding the stock in 2020.
