Synthesis Energy Systems Inc.
NASDAQ: SYMX

Hedge Fund Takes an 11% Stake

This morning, April 27th, 2015, Hedge Fund Manager John Paulson announced his fund took a 10 million share position amounting to an 11% stake in Synthesis Energy Systems Inc. (NASDAQ: SYMX).  Paulson is the manager of Paulson & Co.  SYMX is currently trading with a $93 million market cap and an outstanding float of 59 million shares.  After hours shares spike up to a high of $3.00, nearly 300% higher than the close of trading on Friday April 24th, 2015.  Shares opened this morning up 70%.  This still represents a respectable overnight gain but was well off the after hours peak as the chart below shows.

Synthesis Energy Systems Inc. (NASDAQ: SYMX) has traded in a 52 week range with a low of 63 cents a high of 2.10.  The high of 2.10 was made today.  Stocks in the energy sector has not been particularly strong in 2015 with crude oil trading at multi-year lows, but SYMX has been particularly weak.  SYMX is an energy and chemical producer that utilizes gasification. “The company converts the feedstocks into energy and chemical products through the application of gasification technology“.  The alternative energy has been utilized particularly in China where SYMX has extensive operations.

Over the last 5 years SYMX has shown mixed sales revenue.  From 2010-2011 revenue slowly increased from $9 million to $10 million, but in 2012 sales declined to $3 million and then in 2013 sales hit a low of $500k.  In 2014 revenue increased sharply to $14 million.  Despite generating record sales, SYMX is still operating on a net loss of approximately $14 million in 2014.

The Street currently has the company rated as a Sell with a rating score of D.  They noted the operating losses and the fact that the company is among the weakest in the sub-sector of Energy and Chemical Production.

“We rate SYNTHESIS ENERGY SYSTEMS INC (SYMX) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company’s weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself .”

The picture was looking bleak for SYMX until John Paulson took his stake.  Investors at this point will hope with the billionaire hedge fund managers influence SYMX can become a profitable company.  The surge today of over 300% afterhours certainly indicated investors excitement over the news.  This may be in part due to the recent activist investor Carl Icahn acquiring a large stake in Voltari (NASDAQ: VLTC).  In the weeks following the Ichan announcement, shares of VLTC surged over 1000%.  Investors and traders will closely watch SYMX in the coming days for signs of a similarly strong move.  During the initial breakout, traders are often more excited about potential short term profits vs. the long term picture for the companies they are trading.  Although short term SYMX may be posed for a quick breakout to $3.00, the bigger picture shows the company needs substantial management changes before posting annual net profits.

IMAGE CREDIT