Tom Winnifrith Bearcast 28 February - why there will be more 0ps in 2015

Comments

1. ---

   JustCurious

   28 February 2015, 11:33

   Tom

   If you are open to ideas on topics for Bearcasts or articles, I would like to suggest that you do one which lists the Nomads of AIM who you think are respectable and those who are, shall we say, less trustworthy. I think it would help investors like me who do not have as many years of experience watching AIM.

   Many thanks

2. ---

   Daniel Victor

   28 February 2015, 12:04

   Hard-won wisdom that about the acquisitions ! I’m a big fan of Paul Scott,but he was also bullish about Audioboom.

3. ---

   drunken sailor

   28 February 2015, 12:07

   Tom,

   Delisting does not automatically mean 0p though in well over 95% of cases both happen. That is because there is a common cause and that common cause is the company has run out of money and it just does not make economic sense to bail it out (plenty of companies that it does not make economic sense to bail out do get bailed out and the lack of economic sense manifests itself about 12 months later.)

   With the whole “unable to find a Nomad situation”, again you need to look at what is cause and what is effect. Let’s take TXO as an example. Their Nomad of about 15 months resigned giving 1 months notice a week and a month ago – effect shares suspended before market opened on Mon because they had not found a Nomad mad enough to take them on. Fat Ray is not the only one who takes on dogs with no DD though maybe even he is smarting a little from Naibu. Fatty Cornish had TXO before and is unlikely to want them back now they are such tarnished goods, but there are still others who might be mad enough. The key question is why did Northland resign in the first place?

   This comes back to common cause. My best guess is that TXO were trading whilst insolvent from the moment the plug was pulled on the next tranche of debt that was due for drawdown back in Dec 14. Any AIM rule abiding company would have sought a suspension pending clarification of financial position. A number of regulatory bodies were aware that TXO was potentially trading whilst insolvent and would have asked Northland what was going on. I suspect that TXO lied to Northland saying it was all ok and there was just a delay in the drawdown and Northland stupidly passed this back up the line. When the truth finally emerged and was reported to the market that yet another debt funding deal had had the plug pulled on it half way through, Northland had no option but to resign because they had passed TXO’s lies back to the regulatory bodies.

   Thus the underlying cause of the Nomad resigning and of TXO being unable to find a new Nomad and of heading for 0p is the dire financial position they are in. Why are they in a dire financial position? Because they made a bunch of investments which have not paid off at the same time the board has had its snouts firmly in the trough of what shareholders’ money there was and have been gobbling it down in fees and related party transactions (paying their other companies for their services).

   Thus the cause of 0p is a dire financial position brought about mainly by greedy and incompetent BoDs. Macro economic headwinds clearly play their part, but only in the timing of the 0p and not in the inevitability of it.

4. ---

   drunken sailor

   28 February 2015, 12:30

   DV,

   We all get things wrong. It is very very difficult to make money as a bear, even shorting dog companies like QPP and AFR has its perils So the way to make money is to invest in good companies. We are all looking for that great company that is going to multibag. We all wish we could jump in a time machine and go back to the start of Microsoft and buy a few £K worth of shares and comeback to current times and be millionaires. Back then there would have been plenty of people who would have been bearish on Microsoft and plenty of people who would have been bullish on similar companies that did not make it and went bust. The key thing is to do your research as thoroughly as you can, but when you have bought the shares, do not marry them! Continually re-evaluate – was your research flawed, were you sucked in by a glamour story that was just fantasy? and if you were get out and preserve your capital for something else.

5. ---

   Paul Scott

   28 February 2015, 13:24

   Hi Daniel,

   Just to clarify, I thought AudioBoom was a nice idea last year, and could see it was in a roaring bull run, so I traded it up from 5p to about 14p. So a very successful trade! However, after having lunch with Was Shakoor, he convinced me that it wasn’t worth anything like what it was valued at, which is what persuaded me to sell. Was is a brilliant analyst, and his take on things is usually correct. So I’ve been neutral/bearish on Audioboom since. The most recent results were lamentable, and I turned bearish on it around 9p, as covered in my morning report on 23 Feb 2015.

   So the point I’m making is that my views on shares are fluid. I’m constantly questioning my own analysis, and if the facts change, then so does my opinion. But as regards Audioboom, it was one of my most successful trades last year, but it’s not something I would hold now, having seen how poor the financial results are.

   Regards, Paul.

6. ---

   Paul Scott

   28 February 2015, 14:06

   Hi Tom,

   Couple of points. ShareSoc asked me to give a talk about balance sheets at an event last week, and I pointed out how banks are rebuilding their balance sheets at the moment by alllowing zombie (i.e. chronically over-geared companies and individuals) to carry on trading, even though they can only just service the interest payments – and have no realistic chance of ever paying back the capital.

   This makes sense from the banks point of view, as they can borrow from BoE for 0.5%, and charge problem borrowers say 5.0% interest. So that’s a 4.5% recovery against their bad debt that is being made by the bank each year. Keep that rolling for a few years, and the bank’s own balance sheet is gradually repaired.

   However, once interest rates go up, then the bank’s fat lending margin narrows, and that’s the point when they start forcing companies to raise fresh equity, or force them into Administration.

   I don’t know what the timescales are, but this process will definitely happen, and it’s normal – historically the level of corporate insolvencies peaks AFTER a recession, not during it, as banks can get better asset recoveries once the economy is improving again.

   As regards Rye – I believe they have had a world famous scallop festival there in the last week, which might be worth checking out?

   Tungsten – to emphasise, I have never said “buy Tungsten”, because I categorically don’t give any advice or recommendations. Am purely a blogger/commentator, giving my own personal views on shares. People can then do their own research & decide for themselves, indeed I welcome two-way discussion between bulls & bears, it’s healthy. Pity it has to be so poisonous on bulletin boards, but there we go.

   I’m currently neutral on Tungsten. I think the bear case is exaggerated, but they have certainly highlighted some important points, which is what made me think again, and decide to sell up (at c.220p) and watch from the sidelines for the time being. It’s still a good concept, but as with so many companies, execution risk is considerable, and with hindsight the company ramped it way too high, and former bulls like me got over-excited about it. Live & learn, and all that.

   Thanks for the bearcasts, I really enjoy them – always interesting – and I nearly always find myself agreeing with you.

   Regards, Paul.

7. ---

   wildrides

   28 February 2015, 15:09

   The sentiments here in are well explored above . Personally I can deal ok with taking some losses on risky punts I entered into of my own free will , being a risk taker , and not averse to the occasional risky punt to make the blood course a bit . What gets me is the odd total surprise that comes right out of left field that one was not expecting at all or at least not in the next financial year . Even with careful due diligence I still get clobbered on occasion in this way and it does require a certain amount of “standing up and brushing yourself down” and re adjusting ones mental map of the world . Fortunately I have risk management in place consisting of over 40 holdings to spread out the risk of failure on the portfolio . I just cannot imagine how these Morons with their life savings invested in two or three Aim stocks of the type like Tom frequently discusses get any sleep at all . Yes I traded QPP and made money out of it in the early days ……… but once even a tiny risk of suspension appeared I stood well clear and kept away . It is just too risky . I just cant get my head around why it is not well on the way to Op already . Its not as if you get advanced warning of suspension . What are they expecting ? 48 hours notice so that they can exit gracefully . Its not going to be pretty .

8. ---

   wildrides

   1 March 2015, 13:59

   Talking about 0P ………….. the Baltic Dry index hit a five year low on 19/02/15 at 509 . Resource stock holders should be mindful. Basically means nobody is booking up ships to move stuff like iron ore etc . Thus means very little demand from the making and doing nations like China for raw materials .
   Perspective :- may 2010 was the peak in last 5 yrs at 4187 and we need to see 1200 plus for a recovery sign.
   I think we are pretty much as bad as it can get now re the BDI. But what the hell do I know ? Ben is the man on BDI

9. ---

   Andy

   2 March 2015, 04:40

   Rye – http://www.ryesussex.co.uk/ is a beautiful ancient Cinque port town, many gorgeous shops and pubs/restaurants no pizza places!! also Deal and Sandwich along the coast near Dover, all in my neck of the woods.I am lucky. ATB