STOCK MARKET NEWS – THE DAY/WEEK IN SMALL CAPS
The Week In Small Caps: July 23
It should be the case that everyone, even political journalists, knows that by-elections mean absolutely nothing in the bigger picture. Much as is the case with council elections. But of course, there would be less to write about if this was admitted. This week’s by-elections have been taken to underline the “ailing” nature of the Government (that description from CNN). However, as was pointed out to me, 2024 will be the new 1992, and are we really going to get “Kinnock” Starmer in power? Certainly not if Labour do not follow the first rule of politics: promise nice things in your manifesto, and then totally ignore them when in Government. Labour seems to have its work cut out in this respect, apart from promising the magic money tree sourced boosts welfare and health. The problem is we are already taxed up to the eyeballs. We really need economic growth to pay for “unfunded” promises.
It was very re-assuring to see the stock market respond so quickly and so well to the latest lower inflation numbers. This was particularly the case given that we are already in the dog days of summer. The fact that some of the economic pixie dust has already filtered down to the small caps – the small cap index was up 2% on the week, is encouraging. Indeed, it was noticeable this week that some names that have been dormant for many months came back into view with decent share price rises. This gives the hint that maybe some in the market have been caught short. We can only hope.
The favourite story of the week was perhaps delivered from Premier African (PREM), as the company’s acting Chairman and CEO, lent the company £1.7m. Rather strangely, the first reaction from the market seemed to be not the merits of the altruistic act, but actually how George Roach has nearly £2m hanging around in his bank account? What should be said here is that it should be impossible to view the loan as anything other than management leading from the front, as well as management having significant faith in its company. This is whatever subsequent events prove to be.
Another funding related situation, and another one that underlines how unhelpful the stock market is in terms of providing funding currently was Namibia focused metals mining company, Andrada Mining (ATM). As one investor pointed out, the latest £7.7m funding news illustrated that not all convertible loans are equal. For instance, the conversion level is 35% above the 7p reference price and the coupon 12%, reasonable in the current illiquid environment. The market took all of this well, with ATM shares closing the week at 7.7p after a 10% rise on Friday.
Shares of Cleantech (CTL) were trading as high as 93p as recently as February, but since then the stock has fallen back on what could best be described as jurisdiction fears regarding its native Chile location. This was rather ironic given the “clean” part of the company’s name: it was founded to be immune to the situation in that country. Fortunately, it would appear that this week’s news of a significant 39% JORC upgrade to its Laguna Verde asset has successfully focused minds that CTL will be a world class producer. The shares rose 55% on the week to close at 59p, helped along by a mention in the Investors Chronicle, were just for a change the stock in question rose beyond just the day they were tipped as being severely undervalued. Given the JORC upgrade was not on the map in February when the shares were over 90p, there now seems little reason for CTL to head back to this zone over the rest of the summer, particularly as we are in the run up to the company’s ASX listing later this year.
The logic of a share price exceeding the level it was before significant, (unexpected) positive news is something which has been suggested here at ZaksTradersCafe on several occasions, most notably with Empire Metals. Here the company revealed a “giant” titanium system in May, and the shares almost halved by the end of June before this month’s ilmenite revelations. The high for the stock in March before any of this was out was 2.8p. Therefore, the stock should always have beaten this, and at 1.6p at the end of last month were as cheap as chips. EEE closed at 3.9p this week. One would justifiably expect much more in coming weeks.
Sticking with the mining theme, and we were reminded with Sovereign Metals (SVML), how with world class assets, it is inevitable that world class companies will knock on your door. In fact, one can say that as far as Rio Tinto’s (RIO) investment agreement the news was about as good as it gets. The assistance and advice on technical and marketing aspects of Kasiya including with respect to Sovereign’s graphite co-product was as much assistance as it was sugar daddy, given the A$40.4m being brought to the table. Perhaps just as important as far as the arrival of Rio, is that validation of Kasiya as a project, and the management of SVML, who have been banging the drum regarding their Malawi project so well, and right from the start. Shares of SVML were up 20% on the week, but given the significance of the news should be well north of the 50p they were in April last year, before Rio, and before the indicated Kasiya resource was increased by over 80%. One would expect the kind of rise that EEE has demonstrated of late to come through for the rest of the summer.
While it may be possible to quibble that despite massive news SVML shares were not given an equally massive markup, in the case of Cadence, it could be argued that there was a decent 27.8% rally in the stock this week off the back of investee company news. KDNC has a 6.5% stake in European Metals (EMH), and the boost to both companies came off the back of news that the European Bank for Reconstruction and Development has agreed to invest €6 million to support the company’s development of the Cinovec Project in the Czech Republic. Given that this is the EBRD’s first lithium project, it has to be regarded as a big deal, and off course the €6m it will put into the project can be regarded as a more than just a pat on the back for Cadence.
A company that already seems set to lay claim to being one of the stocks of the year is Ondo Insurtech (ONDO). What is interesting here is that we have a company with a winning position in a specialist niche, which is right on the money in terms of what the market / its chosen sector needs. This week the company finesses its position as a multi-bagger for 2023, with news regarding a new affiliate partnership with Waterwise. The 4x share price gain for the year so far is backed by the way that ONDO reminded us that its LeakBot can reduce household leaks by 60%. Presumably, it could have done wonders for Thames Water over the years.
One of the aspects of the small cap end of the stock market when liquidity is low, is that it can take a while before investors react, especially to good news. Last month Powerhouse Energy (PHE) kitchen sinked the fundamentals, taking a large goodwill impairment. It also announced a pivot into being a general waste treatment solutions group, as well as the existing waste to green energy remit. It would seem that the latest patent progress news for the delivery of optimal syngas composition, has underlined to the market that PHE is set up to be a serious new player in its chosen space. The shares rose 44% on the week.
This week may have reminded us with many stocks that the market is currently not as forward looking at it should be, in fact, it can be downright backward looking. However, at least in the case of Optibiotix cometh the news story, cometh the right company with the right product at the right time. Given the cancer scare regarding Aspartame, and that we are in the run up to the commercialisation of Optibiotix’s SweetBiotix®, the 150% plus rise in the share price looks to be fair, but may prove to be quite conservative. In addition, we have the kicker for OPTI that after years of plugging away, CEO Stephen O’Hara finally has his day in the sun, although it may have come rather sooner if the company had got its messaging right rather than Aspartame delivering an own goal.
The market has been (characteristically) slow to cotton onto the prospects for URA Holdings (URAH), despite the company underlining the progress being made on the ground in terms of re-starting production at its Gravelotte emerald mine, and the presence of Andrew “42x” Austin on the share register. Given that it is not as if AA wades into the market every day, and his last two efforts in Rockrose and Kistos went rather well, the market has hitherto being looking a rather large gift horse in its even larger mouth. The 30% jump in the shares this week suggests that the market is looking forward to production, and seeing how well AA does on this particular investment.
Disclaimer & Declaration of Interest:
The information, investment views, and recommendations in this Zaks Traders Cafe interview are provided for general information purposes only. Nothing in this interview should be construed as a promotion or solicitation to buy or sell any financial product relating to any companies under discussion or referred to or to engage in or refrain from doing so or engage in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the commentator but no responsibility is accepted for actions based on such opinions or comments. The commentators may or may not hold investments in the companies under discussion.