By Tom Winnifrith | Tuesday 23 October 2012
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.
I have repeatedly warned that for all the Abramovich hype, AIM listed investment company Zoltav Resources (ZOL) enjoyed a joke valuation. It seems as if folks are starting to pick up on this and the shares have now slipped to 3p. But they are still 90% overvalued and are a slam dunk short down to a 0.25p target.
A stock tweeter tweeted to me today that “the valuation was based on anticipation, but they have been dragging their feet for far too long.”
He has now bailed but is not quite correct. The share price was (and is) based on anticipation/hope/hype. The valuation has to be based on what the company has in the way of assets. The fact is that Zoltav has consistently delivered sod all in the way of deals/investment returns but has just burned through investors capital at an alarming rate. So I would value hope/hype at nil and just look at asset backing.
We saw the other day that Zoltav drew down the first half of a £500,000 loan (convertible at 2.3p) but that will only last it three or four months – this company costs a quite astonishing $110,000 per month to administer. For a company doing nothing except buying and selling ( at a loss) a few shares that is quite a bill.
At best this company has net cash as we speak of c£450,000. By the middle of next year that will all be gone. £70,000 a month goes off to money heaven ( or rather to those who run this hopeless enterprise). And yet at 3p Zoltav is still valued at an astonishing £11.5 million.
The best case scenario is that this is used as a cash shell for a Reverse Take Over (RTO) in which case it might just attract a value of two times net cash. That works out at 0.23p per share (and falling at a rate of 0.04p per calendar month).
Gradually that message seems to be sinking in. This happens with all stock market bubbles even on individual stocks. There are total loons out there still punting the idea that somehow this tiny AIM shell with sod all cash will tie up with Rosneft. But gradually the suspension of disbelief which allows for stock levitation way beyond what is reasonable, is being lifted. As folks realise that they will sell. Then others will panic and sell. Eventually even the loons who blather on about Rosneft, the true believers clutching at straws will sell. The process is underway...
This remains one of the most grotesquely overvalued stocks on AIM and a spectacular short. It should unravel in a big way by the early New Year.
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