The heavy trading action recorded for Longford Energy Inc. (CVE:LFD) (PINK:LFDEF) on Tuesday gave a hint that traders are expecting yet another gap up. The situation remains tense as the stock has a history of dealing with large volumes without much price action.
LFD stock price went up 6.5% on Tuesday turning a trading volume of 4.5 million, which was significantly above the average of 1.84 million. The price remained in consolidation range while LFD was listed among the most actively traded stocks on the Toronto Venture Exchange.
Taking it into perspective Longford might be able to repeat the success it had around the beginning of 2012 when the price gaped up twice on a short notice. Traders are pushing it because the company’s fundamental situation is about to change.
To date Longford held a large shareholder’s equity value only because on paper they had included the incurred exploration costs as a long term asset. In reality they had a working capital deficit of $26.2 million.
This will change soon because the company has already decided to sell their stake in Chia Surkh Block in the Kurdistan and expects to be paid $68 million, which will settle their debts nicely. When the asset valuation turns real the company will hold a book value close to $44 million, which is far above the current market cap of $30 million. Assuming a P/B ratio of 1 would suit the bussiness best, this means the stock price could go up to 24 cents per share, or 46.7% higher than the current value.
