Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Having commented on Gfinity (GFIN), the market leading esports business, a few months ago (HERE) that it would be running on fumes by the end of June, this week’s placing was not a great surprise but, nevertheless, it was an interesting development and, as ever, when the facts change, one should reassess and I have become less bearish as a result.
In recent weeks, the share price had been drifting downwards and closed last Friday at 7.75p. On Monday morning this week, Gfinity announced a proposed placing of £3.7 million at 5p. The share price has reacted extremely positively and closed yesterday at 9p. At first glance, rising to 80% above the placing price looks slightly odd, particularly considering that the placing leads to the issuance of 74 million additional shares which is significant dilution bearing in mind the fact that the current number of shares in issue is 83 million.
However, there are a number of attractive elements too.
First, and admittedly this is more of a hygiene factor, the costs of the placing have been kept to an absolute minimum with net proceeds estimated to be £3.63 million, so total costs of £70,000, less than 2% of funds raised, which is pretty frugal for a deal of this quantum.
Secondly, it is a decent amount of money. Unlike the rather odd looking placing in November 2015 of £1 million at 19p, this placing of £3.7 million should provide funds to allow Gfinity to give it a good go over the next twelve months.
Thirdly, and potentially most importantly, the placing is being corner-stoned by a new investor, Hong Kong based, Castle Street International Holdings, which is contributing £2.36 million of the funding and will end up with just under 30% of the company.
Nigel Wray is also continuing to support, holding his shareholding position at 13.4% and putting in £495,000. Hargrave Hale is the other major supporter in the placing with just over £310,000 going in the pot.
The RNS states that Charles Street is connected to Robert Keith and Thomas Fussell. Those of you who have been investing in AIM stocks for a while will recognise the name of Robert Keith as he is often prepared to make a direct significant investment on AIM. From a quick review, I can see that he is, or has been, in recent times invested in Wyg, Silence Therapeutics, Mporium, Igas Energy and Summit to name just a few and appears to be willing to invest significant seven figure sums.
I admire investors like this and, to a certain extent, AIM relies on people like this, and Nigel Wray is another good example, to help decent companies with their funding rounds.
I don’t know Robert Keith but one can’t afford to make these level of investments for this length of time without being reasonably astute and the fact that he is getting in here at 5p gives me some encouragement, He was also involved in Tomb Raider’s creator, Eidos, back in the day, so he may have some experience that could help Gfinity to some small extent.
In summary, although for me the jury remains out on the current business model, I like the CEO, Neville Upton, I like the space it operates in, namely esports, I like the key shareholders, it now has a good slug of funding and there is always a chance that it could be an M&A target.
However, at 9p the enlarged equity is valued at £14 million, giving an enterprise value of about £10 million. This seems punchy for a business yet to find a way to make money; however I will be monitoring closely and if it drifts over time down towards the placing price of 5p, I will be tempted to have a flutter.
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