The decline in the share price of Xcite Energy (LON:XEL) in the past few days is interesting. The only reason to buy/hold through the recent strong upturn was the imminent flow test. As I've said before, I reckon the odds favour a successful outcome and that will undoubtedly trigger a substantial re-rating.
But the flow test is being delayed by bad weather. And in response people have started to sell the shares. The price is now down from 330p to about 260p and looks like falling further.
I sold my shares at around 290 and 310 (from memory) not because I didn't like the story, but because there was no downside protection which would limit the losses in the unlikely event that the flow test fails. Which means that investors could lose most of their money. I preferred to wait on the sidelines for an opportunity to re-enter with a different risk/reward balance.
After the price retreat of the past few days, I can feel my nose starting to twitch. The downside is still unprotected so I'm not interested in making any substantial investment. But the upside has improved. If, on success, the shares rise to £5-£6 then the current share price would yield a quick 100% profit.
I'm not buying back in just yet. But I am keeping a close eye on this situation.
I thought the fall in price may have had something to do with the draw down on the standby equity distribution agreement as well as weather delays, although the price is currently increasing as we speak, from 240 this morning it's hovering around the 270 mark. out of interest, how long do these flow tests usually take once initiated?
