CALGARY — The honeymoon is over for market darling Poseidon Concepts Corp., whose stock price fell 62 per cent on the Toronto Stock Exchange on Thursday.
Stock in the Calgary company, which has grown quickly since being founded a year ago thanks to its storage tanks that resemble giant above-ground swimming pools, opened at less than $6 per share after it reported disappointing financial results after markets closed Wednesday.
The shares closed at $5 even, off $8.22 from Wednesday’s close of $13.22, representing a paper loss of $667 million of shareholders’ equity.
In a note to investors, FirstEnergy Capital analyst Kevin Lo called it the “fall of the king” and referred to an 1818 poem called Ozymandias which talks about the eventual decline of all leaders, no matter how mighty.
“In our case, we are referring to the financial results from the ring tank industry that Poseidon essentially built,” wrote Lo.
“This subsegment had a sector-leading return on capital, profit margins and a growth profile that was unprecedented, but has now begun its reversion to sector norms.”
Several firms lowered their 12-month target price — FirstEnergy cut it to $8.50 a share from $20 and its rating to underperform from outperform.
Analyst Jeff Fetterly of Peters & Co. called the events “Armageddon” and pointed out that Poseidon’s operational weakness was caused by lower utilization, pricing weakness and margin compression.
“We believe Q3/12 results highlight a significant vulnerability in Poseidon’s business model,” he wrote in a note to investors.
Global Hunter analyst Brian Purdy, who suspended his price target on the shares, told Reuters Poseidon’s reduction in future guidance implies the market for large-format fracturing fluid storage has become saturated and customers are abandoning contracts.
Poseidon was spun out by Calgary junior oil and gas producer Open Range Energy Corp. last November.
Its product is built on the need for large, portable liquids storage capacity in the unconventional oil and gas business — well completion firms use huge amounts of water or other liquids under pressure to fracture tight underground formations and allow oil and gas to flow.
Competitors in Calgary including Mullen Group and Fraction Energy Services soon introduced similar ring tank products.
Last month, chief executive Lyle Michaluk and president Cliff Wiebe of Poseidon won the emerging entrepreneur award in the Ernst & Young Entrepreneur Of The Year 2012 Prairies Awards. Michaluk did not immediately return a phone call on Thursday.
Poseidon reported Wednesday that it would trim its capital budget this year, mainly used to build new tanks, by 42 per cent to $35 million.
It reported net income of $7.8 million or 10 cents per share, down from $14.3 million or 24 cents in the same period last year, mainly due to the writeoff of $9.5 million in bad debts.
Revenue rose from $24 million to $41 million.
Poseidon said it found slower markets and lower prices especially in the Bakken shale play of North Dakota and Montana and in the Rockies plays in Colorado and Wyoming.