By Tom Winnifrith | Wednesday 4 November 2015
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 is a bolt from the blue. Regent Pacific a HK and Frankfurt listed investment company run by my good friend Jim Mellon has today announced an all paper offer for AIM listed Plethora (PLE) at 12.5p a share. But hang on, the devil is in the detail.
Jim, Regent Pacific and others already own just under 30% of Plethora and today’s statement makes it clear – as I have warned repeatedly – that a cash crunch was looming.
"For the six months ended 30 June 2015, Plethora made a loss of £493,000 (or approximately HK$5.9million) and had a cash balance as at 30 June 2015 of £2.8 million (or approximately HK$33.4 million).As at 30 October 2015, the financial records of Plethora stated that the cash balance was approximately £1 million (or approximately HK$11 million).Current Plethora expectations are that commercial operations under its current operating plans will face a significant negative impact in January 2016 in the absence of further funding being available to Plethora.”
The collapse in the Plethora share price would have made a fund raising a tough ask. And so Jim has solved the problem. Regent Pacific has net assets last stated of cUS49 million and net cash of cUS$13 million. It can therefore fund Plethora to the point where its premature ejaculation product bursts onto the market. Jim is taking a big bet on this.
The purchase is in Regent shares at HK0.095. At one level Jim has pitched the offer at an incredibly generous level. It is massive premium to the last share price (sub 3p) and also to the price of the last funding (9p). You cannot fault him on this at all.
But be aware that with Regent shares having fallen from HK0.43 five years ago to HK0.095 last night the company is capitalised at just £30 million – roughly speaking NAV. The Plethora offer will be worth £122 million. Okay Jim et al own c30% but that still leaves £86 million worth of Plethora shareholders then owning stock in an HK listed company and one imagines that a fair few of them will be wanting to sell. Apart from anything else the Regent will – following this deal – be valued (at HK$0.05) at £152 million and will have net assets of c£27 million (Plethora has negative net assets). Suddenly Regent is a highly geared play on the success of the Premature Ejaculation drug .PSD502
As such you rather suspect that the HK share price will drift pretty sharpish from the current level. So it is no shock that Plethora shares still trade at a 7p mid not at the 12.5p paper value.
In conclusion, hat’s off to Jim for making this offer. It is probably the best way out. But until we see how big the selling pressure is in HK post the deal it is hard to say where the shares will go.
No doubt Jim will be covering this in his keynote talk at Gold and Bears on November 28.
Remember to get your free ticket to hear from Jim and the other top speakers on 28 November at Gold & Bears enter the promotional code SPGB25 when booking HERE - tickets will be sent out within 24 hours of order.
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