By Nigel Somerville, the Deputy Sheriff of AIM | Wednesday 11 January 2017
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.
ShareProphets AIM-China Filthy Forty play PCG Entertainment (PCGE) has announced a rescue deal. It is great news for shareholders and a stunning coup for head honcho Richard Poulden, the Chairman, who stepped up to the plate following the shocking emergence of difficulties involving previous top dog Mr Kung Min Lin and a deal to buy Centre Point Development Corp (CPDC). The deal announced today looks to be a full lancing of the boil.
The company had previously bought CPDC in two stages involving cash and shares, but things rather fell apart when the vendors failed to honour contractual arrangements to settle payments due to CPDC’s suppliers – who stopped supplying. What had looked a great deal threatened the very survival of PGCE. Former Chairman Kung Min Lin found himself out of the boardroom – apparently because he was too busy trying to rescue fellow Filthy Forty play MoneySwap (SWAP). However company has parted there too and MoneySwap seems close to the edge, having been suspended from trading now for some three and a half months pending accounts, and out of cash.
Part of the difficulty was that within the vendors sat Kolarmy – a vehicle of Kung Min Lin and his brother Henry. In addition, there were various personal shareholdings in PCGE by the Lin brothers and associated entities and persons.
Negotiations to try to break the impasse with the suppliers to CPDC went on and on but without a resolution. Of course, litigation might have been an option but as we all know the only winners there would have been the lawyers, not to mention just how long it might have taken.
Today the company has announced that, in effect, the whole purchase is being unwound via the disposal of CPDC back to Kolarmy and others, and that the PCGE shares held by them and others with links to the previous management are to be returned to the company and sold on by house broker Beaufort, and PCGE gets the cash (net of house broker Beaufort’s entirely reasonable fees!)
Not only does this remove all the uncertainty over the potential damage to the company of the CPDC fiasco, it also gets all those involved at the other end and those with links to the previous regime off the shareholder register. A double clean-up.
With the shares trading at (last seen) 0.15p bid and almost 400 million shares to sell as a result of this package, on paper the company should see something of the order of £600,000 coming in to the coffers without shareholders being diluted.
We are told that a circular will follow as shareholder approval will be needed, but that it does not leave the company as a cash shell in view of its original media assets as well as sports interests.
It all really does look to be a remarkable deal, and one might also think about the role of the Nomad and those with regulatory hats to wear, as there must have been quite a substantial amount of work to do in order to meet all the demands of the rulebook. Far be it from me to praise AIM Regulation, but I fear that it is in order as the result for the company’s shareholders looks to have been the first consideration and Nomad Allenby has done everything a Nomad could and should do..
And, of course, the team now in the boardroom of PCGE under the chairmanship of Richard Poulden must take great credit too.
So where does this leave the company?
Given recent small share issuances of late – including just £20,000 worth to settle up with house broker Beaufort, one would surmise that the company has been very strapped for cash. As such, if it can trouser perhaps as much as £600,000 or thereabouts from the disposal proceeds of the reclaimed shares that should leave things rather more comfortable.
The company did previously indicate that it was looking at some other acquisitions and I would imagine that with rather more management time available for running the company rather than simply trying to keep it alive, we might see some developments in the fullness of time.
Of course, the first thing is to get this deal over the line by calling an EGM and I would expect strong management confidence that the necessary resolutions will be passed with flying colours.
After that, the vision is of an absolutely vast market and one might hope now that the company can move forward and start to create some shareholder value.
The company is still part of our Filthy Forty, but looks on the cusp of being completely cleaned up. The connections with China are there, of course, as that is the focus of the business, but one does get the sense that this is an AIM company going into China, rather than a China Norfolk trying to come to AIM. The recent record – assuming all now completes as planned – of the board, especially given the starting point when the old regime ended, looks to have been positively heroic.
As for valuation, the market capitalisation sits currently at just over £2 million or so and the company looks set to have over a quarter of that (even after Beaufort’s very reasonable fees) backed up by cash and some interesting business prospects.
It is all very speculative, but I might just be tempted to stick a toe in the water as a wild punt.
Definitely one to watch with interest.
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