By Nigel Somerville, the Deputy Sheriff of AIM | Tuesday 18 April 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.
This morning AIM-listed Advanced Oncotherapy (AVO) announced another conversion by Bracknor. Having previously converted three lumps of £100,000 of death spiral loans, Bracknor has gone for £200,000 worth this time – but at the lowest price yet, just 26.74p. That leaves things looking decidedly sticky for the company, which got authority to issue Bracknor with enough loan conversion shares based on the assumption of an average loan conversion price of 44p and the associated warrants at 57p.
Meanwhile a trip to the company’s website reveals that Bracknor has been offloading. As you can see HERE as at 30 January Bracknor had 829,410 shares (1.1% of the equity in issue) and the company tried to spoof us by reporting that as of 14 March Bracknor had increased its holding (although we were not told by how much) by buying in the market.
Today the story is rather different: as at 31 March Bracknor was holding just 424,410 shares (0.6% of the equity) despite having taken delivery of 179,410 conversion and conversion fee shares (at 57p, compared to today’s 27.5p last seen!) as announced on 28 February and admitted to trading on 3 March. So much for Bracknor buying in the market, then – on those numbers, in the two months since the end of January Bracknor dumped a net 584,410 shares.
I’m not wholly convinced by the numbers – that odd 410 shares issued as per the 28 February RNS seems to match the 829,410 number as at the end of January so I wonder if that Bracknor holding already included shares issued to it after 30 January. That would suggest Bracknor had dumped a net 405,000 shares in the last couple of weeks of March. Whatever – Bracknor has been selling, and the report on the company’s website that it had been buying was just a spoof.
Of course Bracknor isn’t selling at anything like the rate needed to trigger another minimum of nine tranches of £1.3 million (nominal) of loans and get it all converted within two years because there just aren’t any buyers out there for Bracknor to stiff – let alone the maximum of 19 more tranches. Here we are about two months in and Bracknor hasn’t even converted half of tranche 1.
Yet despite the slow progress on that score the price action since the announcement of the Bracknor deal (from a close of 60.5p on day of announcement down to the current 27.5p mid) tells you everything you need to know. With an almost limitless supply of paper for Bracknor to offload as fast as it can, there is only one way this share can go.
Well, sort of. Because there is the small matter of the nominal price. Most people ignore the nominal price and for most purposes it is indeed meaningless – it is the market price which matters. But Company Law says you can’t issue shares at below nominal, so if the shares carry on falling (seemingly inevitably) then Bracknor is going to get lobster-potted because it can’t convert its loans below the 25p nominal price.
That is why the following was included in the EGM Circular which gave the company authority to go ahead with the Bracknor package:
Under the terms of the Subscription Agreement, if the closing price of the Ordinary Shares is lower than 110% of their par value for a period of more than 10 consecutive Trading Days the Company must convene a general meeting of Shareholders within 45 days to propose a reduction of the par value of the Ordinary Shares by not less than half.
In other words if the shares close below 27.5p for ten consecutive days then we get a new EGM to drop the nominal to 12p or below. Then Bracknor can up its rate of sales until the new nominal price is reached. The question I have is what closing price is being referred to here. Is it the mid-price? Perhaps it is the closing volume weighted average price? Or is it the closing bid price?
On two days last week the shares (at mid-price) closed below that figure. On Wednesday the closing mid-price was 27.5p on the nose.
This means that if the terms of the 10-day closing price condition for calling an EGM to drop the nominal price refer to the mid-price then the clock was reset at Wednesday’s close last week. If, however, it is the bid price then we already had three consecutive closes below that 27.5p trigger point.
Perhaps the company might care to clarify which price it refers to? Are we already three days into the EGM trigger?
Meanwhile it all might sound like a problem for Bracknor which can’t offload shares fast enough to get its cash banked. But it is a bigger problem for Advanced as it needs the funding package to pay for development work and its Harley Street clinic. And, of course, Exec Chairman Dr Michael Sinclair’s gym membership.
Reading the Circular, it does not say that Advanced can force the payment of the next loan tranche – merely that Bracknor can. So if the shares zoom ahead (perhaps if Sinophi decides to sign a new supply contract and a herd of flying pigs swoops past ShareProphets Towers) then Bracknor is quids in. But if the shares crash and Bracknor doesn’t want to pay out any more of the (up to) £26 million funding package (having only forked out for £1.3 million of notes at a discount thus far) it looks horribly as though Advanced is in a hole.
I can’t see how Bracknor will want to pony up any more cash until it has cleared the last lot and got its money. And get its money it will – which is why Advanced will eventually be forced to call an EGM to reduce its nominal share price to at least 12p (although perhaps 0.1p would be more sensible) and then Bracknor will sell the living daylights out of the shares.
Which is what holders should do.
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