Selectcore Ltd. (CVE:SCG) (PINK:SLXXF) has gone flat after actively gaining on the share price for more than a week. The trading volume is diving down as well, pointing out the fun is over.It is clear that only two scenarios are possible, if no earth shaking news comes out in the near future. The stock will either enter a consolidation period as traders await financial results for the whole 2010, or the stock will correct back down. Declining trading volumes show conservative profit taking, which doesn’t hurt the current price. The rally has exhausted, but there are little signs of correction yet.
Selectcore presented a couple of important news releases as the price rally unfolded. These included a declaration of growth strategy for 2011 and an update on the refinancing efforts. The impact from these announcements should be able to keep the stock price inflated, but it’s still not clear if the current levels will hold without correction.
The company has received multiple offers from various lenders, but is still evaluating borrowing possibilities. Under the plan to eliminate the outstanding senior debt facility, the company has a commitment to repay $1.25 million by March 31, 2011, which is left for its term loan, along with $2.5 million under the revolving credit facility by the end of 2011. The company could not cover these sums without taking out another loan.
Key goals for 2011 lack details. Except for the clear goal to eliminate senior debt, the company has stated some general milestones – growing its core business and merchant network, diversifying into high-margin financial transaction processing and licensing its technology in emerging markets.
The latest short-term share price rally has run out of fuel after the market cap hit $21 million. That’s a large valuation the company has yet to stand up to. SCG sales topped $102 million in 2010, but the business failed to turn those proceeds into profits. Their gross profit margins are still very low and they constantly lack working capital. Audited financials for year end 2010 should be filed by April 2011 and many traders will be looking for improvements to show up on those statements.
