Firstly, I’m sorry for all the SYR shareholders who were badly burnt today and have continued to be burnt over the last few months. If you have been reading my comments over the last few months though and
in this very thread itself (please read entire thread for a whole bunch of reasons), I can’t particularly say that any fall has come as a big surprise to me, as I have continuously warned all the way from June when share price was 6.4 and diluted market cap was approx. AUD 1.75 billion. SYR has since lost diluted market cap of around 834 million dollars with an intra day low today of 3.2. Intra day fall today is exactly 50% since I warned at 6.4 in June. Regrettably, a lot of shareholders seem to have ignored several of the warning signs and I’ve myself have warned of many of them. I’ll have a recap of some of them, including some critical ones going forward. This is a long comment – so please feel to ignore if you don’t like long comments.
1/
High diluted market cap (negative) –
As I mentioned above, there has been a massive fall in diluted market cap. I noted at the time of SYR’s initial flash crash that even at share price of 2$, diluted market cap is 0.5 billion dollars. This is huge for a company not in production and obviously the close to 2 billion valuation was exceedingly high.
http://hotcopper.com.au/threads/ann-trading-halt-syr-ax.2791786/page-55?post_id=18311103
This was a screaming negative in my view which I had mentioned some months back. It is not a screaming negative anymore with a massive trimming down of SYR’s valuation but as you can see, my fears were justified. It is still a potential negative however as SYR’s valuation is still much more than others in the sector and I’ve always maintained that SYR would be better off if other companies in the sector do well too, so that SYR’s valuation does not stand out so much.
2/
Operations to catch up with price (negative) –
Another key risk I’ve mentioned is that SYR’s valuation tends to run ahead of its price from time to time. We see that happening again and now reality has set in.
3
/ Potential risk of Tolga selling (negative) –
A very massive risk IMHO is the
FEAR of Tolga selling down his shares. Please note that I am not saying he is selling and am just saying the
fear of his selling. This is not just my fear and quite a few people have noted this down today on the SYR forum. To the best of my memory, I’ve never held SYR before, not even as a trade (can’t be 100% sure if I’ve traded it before but I can’t recollect any such thing). Today, I was contemplating a fast trade in the morning crash but decided that it was just not worth the risk. Whether Tolga sells or not, the fear still remains. And this was the biggest fear in my mind today. I’m trying to put myself in the guy’s boots and his approx. 15 million shares itself were worth AUD 97,668,634 some months back and are now worth 49,127,616 – a fall of 48,541,018 million dollars. Tolga is now receiving some 225 K each year as a consultant or something but his main assets are his SYR shares. I can't see what he is getting by not booking some profits. A director selling always receives massive attention. An ex – director, not so much. So yeah, once more, I’m not suggesting he is selling, but this was on my mind today, like many others
http://hotcopper.com.au/threads/ann-final-directors-interest-notice-syr-ax.2944352/?post_id=19634876
I note this extract however in this good media article linked earlier today
“Mr Kumova said he had no intention to sell any of his stake of about 6 per cent at this stage. "I genuinely believe in this business and I am inspired by its potential."” - extract
http://hotcopper.com.au/threads/the...hat-happened.2944313/page-25?post_id=19648223
4/ Dead cat bounce (positive) –
On a positive note, we could always have a dead cat bounce even if SYR is destined to go lower. So, I’m putting this down as a positive
5/ Trading opportunities (positive) –
There were massive trading opportunities today itself and those who bought in today’s morning crash would have made a killing. These could continue. Positive again
6/ Long term value (could be positive) –
A huge chunk of SYR’s market cap has now been slashed. Some might even see value. Really hard to say right now. I’m just putting this down to be fair to you guys, and not be overly negative
7/ Fear caused due to sudden departure (negative) –
Here is Motley’s article on this news
http://www.********.au/2016/10/05/heres-why-syrah-resources-ltd-shares-are-getting-crushed/
I’m not following Vocus but apparently, they had a sudden departure too, and share price was smashed. I don’t know when all this happened but apparently, Vocus has gone down from 9.4 in June to 5.9 now – a similar fall to SYR and that company is still a multi billion dollar company. The logic of Motley appears sound and this fear can be seen in today’s comments with many commenters wondering whether something deeper is going on.
8/ Loss of founding members equals loss of morale (negative) –
“Syrah's chairman, Jim Askew, who will become executive chairman while a replacement for Mr Kumova is sought, said the reaction was not unexpected given Mr Kumova's "big personal following", but insisted the transition was an orderly one.” - extract
http://hotcopper.com.au/threads/the...hat-happened.2944313/page-25?post_id=19648223
Self explanatory guys. Tolga was obviously a massive part of SYR. Even though I’ve been extremely wary of SYR’s share price and was watched from a distance, I’ve been a massive fan of Tolga and would have no hesitation to consider a stock he was involved in, as he was a gem of an asset to SYR. I think he has done a remarkable job for the company, but obviously his departure is going to cause a massive void and some gigantic boots to fill. A vacant position also increases the uncertainty
9/ SYR coming into production next year (positive) –
SYR is miles ahead of other graphite companies and of course this could be positive once the dust settles, if at all it settles, as some people see value. I’m again just highlighting the positive to be fair to you guys
10/ Insto support and loss of Tolga – Insto support was one of SYR’s biggest positives. Tolga himself admits that his skills are in financing a business
http://hotcopper.com.au/threads/the...hat-happened.2944313/page-25?post_id=19648223
An obvious extension of that is getting insto support to buy your story. There is always a risk of instos departing in this absence.
10/ Graphite sector heating up (negative) –
SYR has no real competitors when it just started and this helped SYR’s massive valuation. SYR has a huge number of competitors now and funding is the main thing stopping them. I’m always maintained that cash is one of the determining factors in the graphite sector. If SYR’s many competitors start getting funding, this is always a risk for SYR
11/
Poor risk-reward ratio (neutral) – I’ve been highlighting since 6.4 in June that SYR has a terrible risk – reward ratio - a risk of massive loss with very little potential of good reward. My fears have proven right with a 50% fall in 3.5 months. I’ve changed my risk-reward ratio from screaming negative to neutral, as I admit that some people might find value.
12/
Price not moved in last few years and long term investor frustration (negative) – Something I pointed out earlier too. When I started commenting on graphite with my first analysis in March 2015, SYR’s price was 4.72. It took more than a year to go up even a cent. When I turned very bearish in June, it had only 1 up day since and has already lost 50%. At some stage, investors might get frustrated too, as they have been hanging on to dreams with savvy investors leaving ages ago. I believe that even the founding directors have exited ages ago, which should speak for itself.
13/
Macro risks (negative) – I’ve maintained since quite sometime that in the time to come, we will end up having one of the worst if not the worst financial crisis in history. The falls that I anticipate in global markets will IMHO be sudden and swift like today’s fall in SYR which would take people by surprise. I’ve covered it in much more detail here
http://hotcopper.com.au/threads/gold-the-last-man-standing.2809337/?post_id=18233364
14/ Problems with Credit Suisse (negative) –
Credit Suisse has been SYR’s biggest supporter. Even they seem surprised by today’s news and have mentioned that the resignation “needs explanation”.
http://hotcopper.com.au/threads/the...hat-happened.2944313/page-25?post_id=19648223
Note that in my above macro analysis, I’ve gone in much deeper into individual sectors and even the banking sector and mentioned that “Deutsche Bank and Credit Suisse” are possibly two of the riskier banks which could potentially cause the next Lehman moment and DB especially which has links everywhere. If anyone has been following recent news, you would know that fears of DB have been intensifying. As I’ve mentioned, SYR’s greatest supporter CS itself has been having huge problems and I’ve raised this issue on the SYR forum in June itself.
15/ Extremes changing position (negative)
Extremes often change in completely opposite direction. Think 2008 where everything was booming and then in the same year, everything had completely collapsed. Investors often think fair value might have arrived but sometimes valuations get insane. SYR IMO was very overvalued but can we really say that we are very undervalued? Are we there yet??????
16/ Shorters (negative)
http://www.shortman.com.au/stock?q=syr
Shorters have been consistently rising. SYR is the 23rd most shorted share on the ASX. Speaks for itself really
17/ Massive resistance at 4.5 (negative)
In my last analysis (quoted comment), as soon as SYR fell below the 4.5 zone, I mentioned that we are now at a very interesting and possibly critical level. I’ve not been following the chart in detail but a quick look shows that SYR apparently did not have any close above 4.5 since, despite some attempts. Turns out that it was indeed a very critical level, as I mentioned, and that was another key inflection point.
18/ Conclusion
I’m not out to come out with a list of all negatives. I’ve tried to be fair above listing some key positives and negatives. Yes, there are positives too, and SYR's fate hangs in the balance.
A point I’ve been trying to make when I started going bearish at exactly 6.4 in June recently was that the risks far exceeded any potential reward. You see now what I was getting at.
Obviously, SYR could end up recovering now and maybe it will also do very well later, and buyers now could make a killing. Maybe, I myself might trade SYR a bit in the time to come.
Who knows? The damage has however already been done – damage which IMO some shareholders have caused themselves as the writing in June IMO was very clearly on the wall and some shareholders very unfortunately chose to ignore them.
Cheers and good luck with your stock.
(20min delay)