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EFH – looking to make a welcome return?

By Nigel Somerville, the Deputy Sheriff of AIM | Saturday 29 October 2016

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.

It was good to see AIM-listed med-tech play Angle (AGL) announce that its CEO, Mr Andrew Newland, had successfully seen his sale-and-repurchase deal with Equities First Holdings LLC (EFH) mature at the end of its term, and that the 1.35 million shares involved were safely back in his mitts. Shareholders in Angle will welcome this – but so, it seems, does EFH. So pleased, in fact, that EFH itself released an RNS in celebration.

The full content of the RNS can be seen HERE.

Of course, if EFH did – as we believe – dump the stock handed over to it at the beginning of the deal and has been buying it back of late so as to settle up, it will have done very nicely. On top of a bit of interest income and an arrangement fee, the shares have dropped a handy amount in between times – from 82.5p on the day the deal was first announced by Angle, to last week’s 62.5p close.

If I were EFH I’d be delighted too. Result!

And so with an announcement going out via the RNS system perhaps there are a few more UK-listed company bosses (and ex company bosses) who might be tempted.

EFH boss, Mr Al Christy Jr is quoted as saying:

The return of collateral to clients is business-as-usual for Equities First Holdings…..As a company, EFH and its subsidiaries have completed more than 700 transactions, and we have a perfect track record of returning our clients' collateral upon maturity and repayment.

Of course, EFH also has a bit of a track record of not returning the stock (perfectly within the terms of these contracts) when the client decides, under the non-recourse terms of these deals, to walk. Of the eight UK deals we’ve picked up on, the client walked in the case of Quindell (QPP, now Watchstone, WTG) and Cloudbuy (CBUY) following collapses in those share prices. We do not know for certain what happened to Andrew "Piggy" Austin's deal, although it seems inconceivable that he still has his arrangement running given the share price drop and margin-call terms typical of these types of contract.

But so far as we know the other five (excluding the now matured and fully settled Angle deal) are still running.

But out of the eight – and discounting the most recent one involving Eddie Truell’s interests in his former hunting ground of Tungsten (TUNG) as it is too recent a deal to judge – only two of the remaining seven have seen the shares in question perform strongly: Optimal Payments (OPAY, now Paysafe, PAYS) and IQE (IQE).

Of the others, Cloudbuy (CBUY) and Igas (IGAS) trade at a small fraction of their share prices when those deals were done, Quindell turned out to be a bit of a fraud which was only rescued when the full pain was successfully transferred onto the suckers invested in Slater & Gordon (SGH) down under. Meanwhile fully-listed Urban&Civic (UANC) is off by about a fifth since NED Robert Adair’s deal with EFH was announced.

Of course, these drops may well all be down to company-specific issues and certainly it is impossible to see how doing a deal with EFH damages the business. It is just pure coincidence that such a high proportion of bosses choosing to do deals with EFH have seen the underlying shares fall away.

But this does not appear to me, statistically, to offer a good omen to shareholders in companies whose directors choose to hawk their stock in this manner.

As such, shareholders may find the announcement of any other such deals going forward to be a bit of a Red Flag – especially if they are disgracefully dressed up as director share purchases, as was the case with Igas and Quindell (amongst others).

We will be keeping an eye on this, and we hope that UK-listed company bosses take note.

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