The Financial Times is not a publication I have looked to for a steer on anything regarding the financial markets for years, basically since it was sold to Nikkei in 2015. For years it has had the mainstream media bias against money, entrepreneurs, and all things to do with capitalism. Nothing wrong with that, everyone is apparently entitled to their own opinion. But when you are biased against a concept your ability to comment is severely impaired. But it is still good, even if you are a capitalist, to see where they are coming from.
The great theme with the mainstream media, led by the FT has been the apparent decline of the London stock market, in terms of IPOs, trading volume and the number of listed companies. It has a number of incentives to do this: to show this is the result of Brexit, an innate dislike of people who make money, and of course bad news sells. Enter our Chancellor Jeremy Hunt, riding to the rescue on the front page of the FT. He would like a London tech push to make a new Nasdaq. He is set to do this via simple tax free saving, extra allowances for UK stocks, and removing complex transaction rules.
50% Down To 12%
Of course, the obvious jibe against this is that it is too little, too late. Our friends at the FT have reminded us that in the 1960s individuals held over 50% of the stock market. Now the figure is riding high at 12%. Even if it was as easy to buy shares as it is buying a packet of crisps, there was no capital gains on profits, or stamp duty, it would be difficult to get the retail investor back up to 50% in a hurry. But then again, why is it not that easy? Of course, the answer is the government is desperate for cash, and taxes everything that moves. In addition, why buy shares when you have the dead certainty of real estate always going up, though not at the moment of course? And why buy shares when you can pay for your mortgage, your energy bills, food and council tax?
The New Nasdaq
AIM should have been our New Nasdaq. But when it costs the thick end of half a million pounds just to get on there, and the same annually to stay there, how could it be. This is especially as at the moment, in the small cap space it is difficult to raise a bean. My suggestion to revitalise the stock market for what it is worth, would be for their to be no market cap / revenue barrier at all. Companies would pay a fixed subscription to the exchange, which unlike now would include all the accounting / legal / regulatory fees. And of course, profits for investors would be tax free. The account opening process would reverse all the draconian AML / KYC red tape as well, and margin rules for professional investors / retail investors would go back to where they were pre this decade. These are the only things that I think that would work in a hurry. I do not think that any of the regulations from the 90s onwards have helped anyone, and they are just another cost, and business and growth prevention. Caveat Emptor worked well in the 1960s without all the rules and regs, and individual investors ruled. I would like this to kick in again.
Predicting The FTSE 100
Of course, I say all of this knowing that as The Week In Small Caps is not on a mainstream outlet, even if I correctly predicted the FTSE 100s closing price correctly every day for a year it would have no impact whatsoever. There are a few positive stock market writers and commentators out there, some of them are apparently good investors as well, But unfortunately most of the good ones seem more keen on promoting themselves than the stock market. I do not see the next Brian Winterflood waiting in the wings.
Rabbits Out Of Hats
In the current small cap environment, where funding is extremely tight, small brokers are being squeezed by regulators even more, you get the feeling that despite Mr Hunt’s new initiative, the whole space is being wound down, rather than built up. This means that for those companies trying to get ahead there are only two routes to success: try and find non dilutive funding, or pull a very large rabbit out of a very small hat. The reality of this means to surprise the market with very good news, or find some kind of sugar daddy funding. One of the more memorable examples which I have talked about on a fundamental and a charting basis has been Empire Metals (EEE) with its giant Pitfield Project where the news regarding titanium blindsided the bears earlier this year.
This week’s rabbits out of hats I think underline what a minnow has to do as a minimum these days to get its share price moving. It should also should remind CEOs that just talking a good game, or promising a good result does not cut the mustard. Investors are totally focused on funding runways, production for resources companies, and contracts / profits for the rest. If you do not tick these boxes the best thing is to keep schtum. Then when you hit whatever jackpot you hit, your stock may just rise more than you expect – if only as a short squeeze.
A good example this month has been Orcadian (ORCA), where the potential farm out that the market was hoping for finally came to pass. What is interesting here is that even after the company making news (and it has more potential deals in the pipeline), the stock is still a half to a third of where it was before the good news landed.
While ORCA has more than tripled this month, and deservedly so, it was surprising that Blencowe (BRES) did not catch a similar kind of bid on Friday. While the shares were up 15% on the day, one would have thought 50% or more should have been seen. This is because news that DFC has given it a $5m grant was and is completely transformational. This is especially if you know who DFC are: the US government – yes, that one with Joe Biden as President. One can only imagine that stale bulls of the stock took the opportunity of the share price rise to head for the exit. At least this gives fresh money the chance to enter a much de-risked situation. We know that the US is ultra keen to attain commodity security, especially in terms of weaning itself off China and in the wake of the Ukraine war.
Optibiotix had its big turnaround breakthrough in July with SweetBiotix®, this coming after reports of the alleged side effects of Aspartame. Since then OPTI has finessed this fortuitous win with its latest announcement regarding an online sales agreement with Boots. Given that the rule with small caps is execution, execution, execution, one can say that the company has delivered on this basis. It does not matter how good the product is if you do not have the distribution. Indeed, this reminds us that a company like Chill Brands (CHLL), one of this week’s risers, could really be boosted by a big name distribution deal. In the meantime the company assured the market that it is on top of potential regulatory moves regarding vaping. If this is the case, we could be treated to an OPTI type rise for the shares, an echo of the rally we saw for the stock in April / May.
One of the toughest sectors of the market, even in a bull market is the biotech space. While our dear Chancellor would like London to the new Nasdaq, with tech winners, one of the things that one sees so often in the US market is how many companies called X Therapeutics, or Y Biotech are amongst the multi-baggers. We simply do not have this, and sentiment remains weak towards this space. Therefore, when a company like Scancell (SCLP) has its shares up 60%, we have a double win. The reason for the relative joy was news of positive data from the first stage in its Phase 2 SCOPE trial with SCIB1 cancer vaccine delivered by needle free injection for advanced melanoma. Indeed, biotechs have had a good month as retail investor favourite Avacta (AVCT) continued to rise after its reported successful completion of ALS-6000-101 sixth dose escalation and a clinical update.
Away from the top risers on news, there were some standouts from companies who pushed their timelines further in a satisfactory way. Given the difficulty in raising cash, even for the best projects, it was pleasing to see Firering (FRG) get away a £756,000 fundraise at 6.5p. This takes the company forward in terms of its Atex lithium-tantalum project in Ivory Coast, and onto production.
For Critical Metals (CRTM) the revelation of copper mineralisation of up to 13% should be enough to deliver fresh momentum for shares from their present 18p level. After all, there are now basically the same as they were this time last year, before a decent amount of fundamental progress. Apart from the latest mineralisation numbers, the start of the week revealed a $3 million non-dilutive debt facility.
Finally, although the pandemic / lockdown is well behind us, for now, there is still the glow of being able to get out and meet investors and companies again. Indeed, I attended two events from First Class Metals (FCM). The company is keen to suggest that this autumn will start accelerating it towards being drill ready on key projects. If one had to choose which project is currently the favourite child it looks as though CEO Marc Sale and his team are eyeing up Zigzag’s lithium as the one that will get over the line first.