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EVR Holdings - valuation insanity writ large

By Evil Banksta | Saturday 18 March 2017

Disclosure: The author has a short position in one or more of the shares mentioned. 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.

As the well-known saying goes, turnover is vanity, profit is sanity but cash is king!  How then, should you refer to a company that displays either zero or negative for all three?  Welcome to the fantasy world of EVR Holdings (EVRH), the holding company for buzz-word bingo business MelodyVR. 

EVRH was formerly called Armstrong Ventures, until May last year when MelodyVR Ltd reversed into it with a hefty valuation of just over £5m.  MelodyVR had only been incorporated a year earlier and the admission document explained that it had no revenue and negative net assets of minus £28.5k.  The valuation of the new business has since soared to a recockulous £105 million (11.125p per share) at the close today.  Cynical Bear has briefly commented on EVRH in his series “how to make money at different stages of the Akers investment lifecycle” but I fear that he has been far too generous for a company that is already failing to deliver, has dreadful fundamentals and looks suspiciously like a thinly disguised pump ‘n’ dump. 

EVRH released its final results on Tuesday.  No progress has been made since Melody VR was established in April 2015 and revenue is still zero.  P&L and cash burn were both around about minus £2.6 million and, as at the end of December, the company had £3.4 million of cash, perhaps enough to get it through to March next year? 

All the usual signs are there: buzzword bingo: tick! Paid ramp-tastic comments from Proactive Investors: tick. Positive charting comments from (I can make the chart say anything) Zak Mir: tick.  Twitter ramps from Big Gib and a slot at Momentous Events: tick.  Interviews and positive comments from Justin Waite on the Vox Markets podcast: tick.  These are the core ingredients of a well organised campaign and this combination is predictably present in so many AIM stocks of late.  I apologise that I can’t find positive twitter comments from Liam Nicholas otherwise we’d have a full house!

Shareholders’ claims that EVRH is a unicorn (an Americanism for a tech start-up that reaches a $1bn price tag) is as fantasy as the mythical creature itself.  Comparisons with Snap Chat, Facebook, Google etc fail to note that even the most hyped of these, Snap Inc, had global revenue in 2016 of $404.5m.  Well before that Snap had in excess of 1m active users in 2013.  EVRH has no revenue and no active users, EVRH doesn’t even have an app despite claiming in its April 2016 admission document that they would “launch the MelodyVR App in 2016”.  

 To suggest that MelodyVR is miles behind the competition (NextVR and JauntVR) would be similar to me suggesting that I’m miles behind Warren Buffett and Bill Gates in the wealth stakes.  Neither Bill now Warren has ever heard of little me and I suspect that neither NextVR not JauntVR have ever heard of MelodyVR.  Both companies have been around for internet eons, have bucket loads of VC cash behind them, working apps, website presence, downloadable content and plainly and simply: credibility.  MelodyVR has none of that, not least of all they score zero on the credibility scale.

But the one thing that EVRH does have is bucket (shop) loads of cheap shares available to its best friends.  At the last count on 16 Feb EVRH had 108.7million warrants in issue with exercise prices between 1.1p and 1.85p.  Back then the company announced that it had raised £13,363 from the exercise of warrants.  What the announcement didn’t make clear was that the warrant holders made more than 6.5 times that amount, about £90k, because with a share price of just over 11p. the warrants are deeply in the money. 

Let me just remind you of those numbers again: 108.7 million warrants with exercise prices between 1.1p and 1.85p.  If they were all exercised then that would be a potential £1.4 million of cash raised for EVRH.  But, more importantly, that would be a profit of £10.5 million for the warrant holders collectively.  

Which leads me to a simple question: Is nil-revenue cash-burning EVRH really in the business of Virtual Reality?  Or is its real business model to issue cheap shares, via warrants, to its best friends so that they can dump them on unsuspecting mug punters?   Because so far one business model is proving to be significantly more profitable than the other

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