The next week or so will see us inundated with predictions for 2024, mostly from people from little day to day knowledge of the market, or who simply should not be involved. The latter, tend to be those who simply have had an article brief imposed on them by their editor. It is a shame that for those who do have extended experience of the markets, they do not get asked, and the ones that are, one would not wish to read.
The long goodbye / extended death of the London stock market has been one of the themes of 2023, with journalists who traditionally hate the stock market, and all those in it, giving their input on the subject. You really notice how poor business journalism is in a bear market, and of course are all too aware of those writing who delight seeing other people losing money. The problem is that we need a booming stock market, to not only save the NHS – but the whole economy. It may be a situation where things have got to such a state that the powers that be are now lobbying the press to call up the market.
The Year Of The IPO
This week’s standout article on the subject was from Jill Treanor in The Times. It promised 2024 “Whisper it, but we could be entering the year of the IPO.” My first reaction is that we are more likely to be entering the year of the cat. The article gives a nod to all the service providers, who really want fresh IPOs for their livelihoods. Alas, their cost, at the time of a cost of living crisis, is one of the main reasons for a company not listing. It is far more cost effective to remain private, unless you are making at least a few hundred thousand a year to cover the annual cost of being listed. That is of course, after forking out say, £500,000 just to get listed.
To this end, it was not surprising that the article focused on possible IPOs that will be worth hundreds of millions, or billions, as a few hundred grand is a drop in the ocean for them. Unfortunately, what the market really needs are incentives for micro caps / small caps to get listed: there are not any for this area currently. The cost of being listed needs to be half to a quarter of what it is now, and of course when you do get listed it is almost impossible to get a fundraise away – the main purpose of the stock market. Suggesting 2024 could be the year of the IPO is currently on a par with having suggested that 1974 could be a year of revival, after a bad 1973. One hopes that falling inflation and an election year might move the dial.
One of the aspects that continues to baffle is why so many companies leave it to just before Christmas, when so many have already closed down for the year, to raise money. Even if the money is raised, the problem is that cash tends to be raised at unfavourable prices. This week companies such as Graft Polymer (GFL) gathered £500,000, and Mindflair (MFAI) over £700,000, stepped up to the plate. A particular sizzle was the raise by video games group TinyBuild (TBLD) raising $12m at 5p. Being able to welcome Atari as a strategic investor is indeed a big deal.
Hopefully, these companies will spend their money wisely. This is especially because one can imagine that there are plenty of cash-strapped companies out there who have not been able to raise, and for whom Q1 2024 is going to be particularly harsh. The ongoing exodus from AIM comes to mind, something which makes the 12% rise since the end of October feel somewhat miraculous.
The stand out stock of the autumn, although not so far in a good way, has been Helium One (HE1). Here we were, including myself, waiting for the big helium reveal in September. The stage was set ahead of this in August, with directors leaving and a fund raise. This seemed canny enough, so the company could get itself over the line. However, rig issues and no big reveal have led to a new heavily discounted fundraise, and another throw of the dice. While we await the result of this, one has to wonder whether the messaging, and the strategy of the company were the right way to go? Being more upfront with the market, and not a series of RNS releases with heavy spin may have helped the company and shareholders alike. Then again, if there is no helium…
Another stock on the back foot this week was Ferro-Alloy Resources (FAR). The decline for the shares this week was all the more disappointing, given that hitherto this company has been one of the better prospects in the small cap area. It was indeed, strange that there was such a harsh warning regarding vanadium prices, and the timing delay for completing its feasibility study on the Balasausqandiq vanadium deposit. In contrast to the likes of Helium One, it could be said that FAR has actually over-egged the pessimism.
While the market has been dominated by surprise bad news of late, the effect of surprise good news should not be underestimated. This week it came from perhaps a rather unlikely source. Bidstack (BIDS) managed to wrong foot the bears by quite some margin. Not only did we see it coming to an agreement with Azerion, but also managing to get a €3m settlement to boot. One would imagine there is a decent chance of BIDS shares at least heading up to where they were in June near 2p early in 2024.
Another positive surprise, and a well phrased RNS, came from financial website group ADVFN (AFN). The positives here are that the company has kitchen sinked the issues of the past, and is looking to modernise the offering. Even more intriguingly the company said it was looking to beef up its management team with new recruits. It will be interesting to see who they choose.
One of the jobs of the challenges of writing about small caps is that very often the companies which flourish are those where sentiment and share price have fallen so low that few in the market are interested in them. This of course makes the squeeze higher, when it comes, all the more aggressive. We have seen this with Sudan focused Wildcat (WCAT) up 63% in the past week, following on from the spurt back up in November. Indeed, with every week that goes by it feels we may be getting nearer to the announcement of a production sharing agreement here. With the AGM out of the way on Friday, things may start to accelerate.