Urthecast Corp LFDEF

Double Barrel

[BlueHorseshoe13]

Anyone long UR is staring down the shaft of two barrels.
 
The first is the state of the global markets.  We’ve had the single largest drop in an opening two week period is recent memory.  People can’t make sense of China’s growth prospects and how their markets are being artificially pumped up.  Oil is trending towards $20 / barrel.  And a number of credible voices (RBS, Morgan) have gone further and called for broad economic collapse.
 
Holding UR is a bet against all of that.  It’s saying that we’ve likely seen the worst, or that the worst is already more or less priced in to the current SP.  The flip side to this coin is that we haven’t seen the worst, and that there is going to be continued capital flight.
 
To go forward you need to have a view on how likely these two scenarios are.
 
Now under the first scenario where we’ve seen the bottom, the SP shouldn’t lose too much ground, or it may even recover slightly absent new news. Under the second scenario you really need to consider how you’ll get your money out.  To even care about the second barrel you have to be fairly confident you’ll win on the first bet (which is that the global capital markets are relatively sound).
 
Now for the second barrel – HRC.
 
As unfathomable as it is, there remains real risk surrounding HRC. 
1)   they canned the gen 2 sensors as they were behind schedule.  You’d think this would be a layup given their experience with gen 1.  Signals that there remain a number of technical issues they are working through.
2)   The very odd introduction of Full Operating Capability, as distinct from IOC.  Q3 MD&A was the first time this was ever discussed.  As best I can tell, this was a construct used to buy more time on the commissioning process.
3)   They stopped releasing videos on their website. I can’t make sense of this.
4)   CEO left abruptly
 
So I think that to hold at this point you also need to be confident that in spite of the points above, HRC is humming towards 20-40M top line next year (5-10M per quarter). And you also have to be confident that they can maintain their 50% + EBITDA margin (meaning that they don’t need to spend a lot of time manually correcting the videos before they can be released). 
 
The flip side is that if there are continued problems with HRC, that these problems will not be viewed as temporary delays that can be overlooked by value investors but as fundamental problems with the technology.  

For a company that tends to trumpet even modest wins with press releases, I find the “quiet and awesome” scenario harder and harder to understand.