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By Tom Winnifrith, The Sheriff of AIM | Monday 31 July 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.
Echo Energy (ECHO) the overvalued wannabee oil explorer has today announced that it is firing its retained broker Brandon Hill. This is most unusual.
All AIM Companies must have a house broker in order to retain a listing. Echo says that it has served notice, one assumes that is three months, on Brandon Hill. It gives no reason but says that it has "been in discussion with a selection of new potential Corporate Brokers for some weeks now and expects to announce the replacement shortly. The new Brokers are expected to bring a strong capability to execute asset and corporate growth transactions across the region and Market Making services."
Swapping brokers is not that unusual but publicly announcing that you are firing one firm before having another on board is really very unusual and not to give a reason for such a dramatic dismissal will also raise eyebrows. So why fire Brandon Hill.
Quite simply Brandon Hill was issued with vast numbers of warrants at very low prices in connection with early stage fund raisings. Shares in Echo now trade at 9.75p valuing the company on a fully diluted basis at £36 million. On a fully diluted basis it has cash of perhaps £22.5 million and one very early stage farm in play. So it is probably - on what it has now - still pretty fully valued, not to say overvalued.
But the shares did hit highs of 22p at peak ramp and if you had warrants with a strike price of as little as 3p what would you do? Brandon Hill has made far more from cashing in its chips than it was ever going to do banking £2-3,000 a month as its corporate retainer. But if your house broker is flogging every share it can that hardly sends out a positive message to the market and rather precludes the broker from publishing the sort of gushing IR document that it might laughably describe as research, which the house is normally expected to produce.
You can understand why Brandon Hill was cashing in its chips. But equally you can understand why Echo might have been a bit pissed off and thus made this dramatic announcement. Surely it is far better to get a new broker on board, issue it with some warrants with a 10p strike and so incentivise it to get ramping as hard as it can?
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