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STOCK MARKET NEWS – THE DAY/WEEK IN SMALL CAPS

The Week In Small Caps: June 25

25/06/2023

The Week In Small Caps: June 25

Mortgage Furlough

It was a memorable week, mostly for the wrong reasons. Much of it was dominated by the tragedy of Titan, where the fates could not have been more cruel. Closer to home and the captain of our ship, Rishi Sunak, was dragged into intervening in the self-created disaster, which has been delivered via the Bank of England. It was predictable that some kind of mortgage furlough was on its way. However, the 12 month cushion and credit score gestures are no way near enough to prevent a catastrophe. One would imagine there will have to be direct mortgage payment relief, or a massive cut in interest rates.

Independent Bank of England

Given that part of the BoE’s remit, along with the rest of the Blob is to remove the Government, the former scenario seems more likely. Remember, Gordon Brown gave the BoE independence, and most of what he did was either a disaster at the time, or further down the road. An independent central bank tends to mean that the left hand does not know or is able to control what the right hand is doing as far as economic policy. In this case, it has gone rogue. And anyway, tax at 75 year highs is as good or better way of cutting money supply than interest rates, if you belief in any of that economic theory any more.

Summer Holiday Fundraising

For the stock market, heading for the summer, we have a similar trajectory to the one seen this time last year. Lots of small caps raising money before the brokers leave town, and lots of lightening of the load in terms of portfolios, to pay for summer holidays. Both the FTSE 100 and the small cap index have fallen below their 200 day moving averages, a bear signal, and not many would say that it does not feel like it. That said, developments this weekend in Russia may pan out positively, if Putin’s Wagner nemesis gets a walkover. However, this could be wishful thinking.

Bitcoin At $30,000

Despite the negative backdrop, there was indeed some positive highlights. Fans of crypto will have noted how the authorities in the USA seem to have been seen off, if only temporarily with Binance. Hence, Bitcoin being over $30,000, and one year highs, was a boost for Argo Blockchain (ARB), up nearly 100%. It is in the run up to its AGM on Friday, as is Hemogenyx (HEMO), rising nearly 50%, bouncing back from the announcement of a clinical hold on IND for HEMO-CAR-T on June 2. Clearly, some are counting down the 30 days as far as what additional information the FDA would like to know.

Panthera

Speaking of counting down the days, the last we heard from gold explorer Panthera (PAT) at the beginning of June is that it has agreed to extend LCM Funding Sg Pty Ltd’s due diligence deadline to June 30 from May 31 for the funding arrangement for $10.5 million in litigation financing. Presumably, the denouement will occur this week, and the shares could build on the 33% gain we have seen in recent sessions. We wait to see whether social media speculation regarding the company being awarded a 7.5m oz significant gold project comes to pass.

GreenX

Another stock where investors may be looking forward in anticipation is GreenX (GRX). Here the shares touched 60p, with the company having raised £4m at 31p in March. As we know, one of the best indicators on the stock market is when there is strength above the placing price. Perhaps those in the know are licking their lips at the prospect of the company’s claims for damages against Poland of up to £737 million. This compares to the present market cap of £149m, something which could of course be rather transformational.

Zenith Energy

We have a similar state of affairs brewing at Zenith Energy (ZEN), who earlier this month filed legal proceedings against Tunisia, accusing the government of being unhelpful to those who invest in the country, and looking for $48 million in damages. Presumably, as the situation develops, the claim could balloon. Being on a no win – no fee basis, Zenith shareholders, whose company is valued at £10m, could be looking at a decent percentage gain. In the meantime, this week ZEN announced it had signed a deal for a South Sudan oil and gas licence.

Wildcat Petroleum

A company which has seen its shares fall back on concerns over the situation in next door Republic of Sudan is Wildcat Petroleum (WCAT. What is interesting about conflicts in such parts of the world is that the powers that be are normally keeping a close eye on making sure the particular assets are safeguarded, and that they can get their share. Given that this is the case, as the conflict rumbles on, it may be that companies such as Wildcat find that their hand at striking deals is stronger than it was beforehand.

Hydrogen Utopia

Shares of waste plastic to hydrogen group Hydrogen Utopia (HUI), were up nearly 50%, as it announced the sweetest of sweetheart deals as far as a deal to buy 49% of medical cannabis cultivator CCS. For a refundable loan of £500,000, HUI will be getting its share of a company set to make €6m next year, and €10m the year after. The result is that the company is financially de-risked for its shareholders, and should be able to start the rollout of waste plastic to hydrogen plants across Europe. Given that the shares listed at 7.5p last year, and are still only at 8.5p, one would expect the sharp re-rate this week to continue. This is especially as the company has effectively leapfrogged some of companies already in the medical cannabis space on the London market.

Avacta

This time last week shareholders in Avacta (AVCT) were allegedly waiting on a sharp share price fall on the possibility of fundraise news. Of course, this possibility was leaked by shorters hoping to see the stock fall 10% or more from the 100p level, so they could turn a profit. They take advantage of the way that leaking bearish news in a malicious manner is fine, it is only leaking bullish news that is not. Therefore, it is all the more pleasing that a week on Avacta shares are trading up at 122p. So hopefully the bears have lost painful amounts of money, especially because there is currently no efficient (cheap) way companies can strike back at those who deliberately defame them for profit. The small cap area is particularly vulnerable, as by definition they are companies who are at a relatively weak stage of their development and do not have the time or money to fight back. Shame on the (admittedly few) people who enjoy distorting / omitting information regarding companies for their gain, and shareholders’ loss.

Fulcrum Metals / Panther

Of course, not all companies this week soared on news. But there were perhaps some who may be worth watching for such potential rises. For instance, Fulcrum Metals (FMET) was listed at 17.5p in February. The stock is now at 15.75p despite strong newsflow since then, including the latest statement from the company when it said the second phase exploration at Big Bear has provided it with a wealth of important new data for geological mapping, and rock samples which are currently at the lab for assay. Ironically, Panther Metals (PALM), which has 20% of FMET, has been a better performer of late.

Union Jack / Reabold Resources

Even more in the unfair valuation department remains the contrast between Union Jack (UJO), and its 16.6% holding in West Newton, where the stock has been soaring of late (up some 50% since the beginning of last month), and Reabold Resources (RBD), which has 56%. The latter’s shares are back near 2022 lows. A vast disconnect, which one presumes will be corrected sooner rather than later.

 

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.

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