The Week In Small Caps: April 14
Terminal Decline
The doom continues as far as the mainstream financial media, with CityAM asking whether AIM is in terminal decline? Well, of course it is if you are a financial journalist trying to get more clicks. Surprisingly enough, despite over 30 years of day in, day out experience of the financial markets, no one has either asked me for my opinion, or asked me to write column on the City. They never will. Funny that. All we have been left with in the aforementioned CityAM article was a generic, executive doublespeak quote that AIM is, “one of the world’s “most successful and established markets for dynamic high-growth companies supported by a remarkable community of companies, advisors and investors”. Well, “one of” could be one of 100, and “successful” could mean “successful” for the owner, rather than the companies listed on it. It is unprecedented that the stream of companies have delivered such harsh valedictory RNSs, yet the exchange trumpets the same positive spin. The acid test is that no one is bemoaning the death of the Nasdaq, Euronext or NYSE. We are definitely doing something wrong.
Exodus
The state of AIM is of course more complex than a negative headline, the exodus of companies leaving, or it supposedly being the best place for growth companies. For some it is. Premier African Minerals (PREM) is successfully using the market as an ATM, and so has Helium One (HE1) as if they were sitting on a free ATM. It could also be the case that the frame of reference for AIM is wrong. Its heyday was in the 2000s, before the Global Financial Crisis in 2008, and it could be argued that era was a temporarily bullish blip. Given the cost of being on AIM – the thick end of £0.5m a year, you really need to be a company making £1m profit a year to make it worthwhile. Or you need to have such an edge, or a story, which will boost the share price enough to have an annual £0.5m – £1m cash call. In addition, as management, you need to have the skills to be able to deal and pay for all the service providers, admin, legal / accounting, Nomad, et al. Such people do not grow on trees and would rather get a cushy job at a blue chip. As a guess, like for like, being on AIM is five times more expensive than being a private company. The answer would be a subscription model, with the cost of listing, Nomad’s all included in the price. However, somehow I do not think those living off AIM companies would being rushing to allow this to happen. Alas, even if many growth companies were paid money to be listed many would not make it. Their success rate always has been and always will be akin to any other small businesses.
White Flag
Even worse, all the costs of being listed and regulated mean that it is more not less likely that a company will fail, or simply wave the white flag and leave the AIM amphitheatre. Also as a guess, rather than £0.5m a year for being listed on AIM, the sustainable level of cost would or should be £100,000. Otherwise why not remain private. Perhaps conveniently, being on Aquis is near to the £100,000 figure. However, Aquis is yet to sing its praises as well as it could. Indeed, it actually is a decent middle ground between being private and on AIM. But most crucially, institutional, and HNW investors do not yet believe this. I know, I have spoken to them and there is still a lot of work to be done.
FTSE 100: 8,000
As far as the week’s good news it was related to the other end of the stock market, with the blue chips nudging record highs via the FTSE 100 at 8,000. This was helped along by gold and oil rising. But it would be a brave person who suggested the big breakout towards 10,000 – some 20 years late, could be seen any time soon even if this only means the London market is catching up with its international peers.
New IPOs
As stated last week ahead of this week’s two high profile IPOs, rather than moaning about the status quo and doing nothing about it, the main way to turn AIM and the London stock market, is to simple get on with the job of listing new, compelling companies. It is therefore no surprise that on Monday stock market mover and shaker Cathal Friel brought Energy Green Transition (EGT) to the market, and David Minchin lead the charge for helium group Helix Exploration (HEX). All we need is a couple of new IPOs a week like this for the next year, and we will be back where we were 20 years ago. Who’s next?
De-Listers Become A Listers
There was more than a touch of irony that the top two risers this week were companies who have said they want to de-list: Byotrol (BYOT) and Molecular Energy (MEN). Unfortunately, to some fans of conspiracy theories, I may be one, their doubling of share price on this news rather suggests something sinister about the junior end of the stock market. It almost seems that small caps have been kept down artificially. For instance, in most minnows, you cannot sell in size at the bid price, and normally have to sell below it. If you want to buy you tend to find the price is marked up (in any meaningful size), and it will be marked up as high as it will take to put you off trading. So basically, most small caps have a “do not trade” sign over them. It also seems to be the case that they are trading at a discount to NAV, a discount to cash, or one times revenue, whichever is the lower. But of course, you cannot buy at the lower prices. This could be seen as a de facto pricing cartel. But then when a company says it is leaving the cartel pricing, the shares double even though the company has said it is leaving. Is this not proof that there is market manipulation to keep valuations down. Or perhaps short positions are being covered? Whatever the case, not a good look for one of the “most successful” stock markets in the world. Given how well the London Stock Exchange Group (LSEG) is looking after the London Stock Exchange, the logical answer is that it should sell off this part of its business, and allow someone else who can manage the market properly to take over.
Tertiary Minerals
At first glance it did not appear that 2024 would move the dial for Tertiary Minerals (TYM), with a business as usual £375,000 fundraise in February. However, 6 weeks later the shares are one of the best risers of the week off news of consent to the EIA which provides for KoBold to earn into Exploration Licence 27067-HQ-LEL known as the Konkola West Copper Project in Zambia. While there have been various false dawns for TYM along its journey, the latest for Zambia appears significant, and enough to finally get the shares to go up and stay up.
Oracle Power
The feeling of turning a corner also seemed to be with Oracle Power (ORCP) this week, with a couple of decent RNS updates. The first was that the international project developer announced that it has secured an exclusive option to acquire 100% of the Blue Rock Valley Copper and Silver Project. located in the Ashburton Basin in the northwest region of Western Australia. The sizzle here is that ORPP said the Project area is also highly prospective for gold, with a number of uranium projects are also nearby. Having already put its Northern Zone to bed, the prospect of OCRP turning around another project successfully in Australia appears to be a real one. Secondly, the company announced the start of a Geotechnical Study and Electrical Resistivity Survey for the Renewable Power plant on the project site in Jhimpir, in the Sindh Province of Pakistan. Given the size and potential reward of this project, shareholders have had one of their better weeks in the recent history of the company.
Westminster Group
The same could be said for shareholders of Westminster Group (WSG), a company continuing pelted with bearish comments, very often of a personal nature. Luckily, the company has forged ahead regardless, with this week’s news of the signing of a 10 years plus, multi-million Pounds managed services contract covering five airports in the DRC. While the shares have risen over 55% this week, they are still well off where they were just a couple of years ago near 6p, and one would anticipate further deal making from the group given the prestige that goes with the latest announcement.
CleanTech Lithium
Finally, after a tough six months for shares of CleanTech (CTL), there may be a catalyst for a rebound in the shares following a decline from 60p to 10.75p at the low. There was a decent rebound of 21% for the shares after the resignation of the CEO, and the announcement that Chairman Steve Kesler is taking over as interim Chairman. Given Kesler’s blue chip credentials, and the company’s statement of business as usual in terms of advancing the company’s flaghship Laguna Verde lithium brine project, one can expect a decent fightback as far as both the newsflow and the share price.
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