Reach4entertainment - an apt name for an entertaining investment?

On the face of it, shares in Reach4entertainment, an Aim listed company look very cheap with a current market cap. of around £3m. The company which recently released an in-line trading statement has turnover around the £70m mark and a p/e ratio of less than 4.

Shares this morning have jumped by around 7% on a renegotiation of it's debt repayment:-

"Heads of Terms Agreement
r4e, the transatlantic media and entertainment company, today announces that it has entered into a Heads of Terms agreement with Allied Irish Bank to restructure the existing loan facility which is due to expire in May 2015.
This agreement, subject to contract, establishes a six year term from date of contract and a new interest rate of 3 per cent over LIBOR."

r4e, describes itself as a transatlantic media and entertainment company, and in recent times looks to have entered a period of uncertainty regarding it's future viability as a going concern. Hence the lowly share price.

The company has substantial debt and for investors with little appetite for high risk, this is certainly one to avoid since there is no margin of safety whatsoever. In fact if trading were to stall or worse suddenly deteriorate, then there is a chance that the company will go bust. The balance sheet shows that r4e has negative net assets despite £18m of goodwill on the balance sheet.

However, on the other side of the coin this is one of those companies that could multi-bag if they can keep costs under control and maintain trading momentum. Gross margins are reasonable (25%) and have improved 2% from last year.

Thomas cook are a good example in recent times of what can happen when heavily indebted companies begin to improve trading and are able to sort out their balance sheet. At one point TCG was trading at around 14p per share.

These "recovery play" situations are extremely risky but can be very rewarding indeed, and I'm certainly not averse to taking a punt from time to time. Ashtead was a really good example some years ago. I did buy Ashtead shares for about 15p if I remember rightly, but sold far too early. Currently the share price is 702p. Unbelievably at one point you could have bought the shares for 1.5p when it looked odds on that the company would go bust.

Will I buy r4e? It's certainly a dilemma! It would certainly be an entertaining if not nail-biting ride.