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Reason to sell MySQUAR No. 136: A partnership with even more of a dog!

By Cynical Bear | Wednesday 11 October 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.

Readers will know I have no love for MySQUAR (MYSQ) for reasons outlined earlier today; however, I had to laugh at yesterday’s announcement of an MOU agreed with Sealand Capital Galaxy (SCGL) as it is arguably an even dodgier company than MySQUAR – clearly a match made in heaven.

I have been following Sealand Capital for a while as the more I look the more red flags I find and this partnership with MySQUAR is as good a reason as any to share my findings. In no particular order, here are the various red flags I have uncovered to date:

-          It is on the Sub-Standard Segment of the Main Market, not AIM. No pesky Nomad required to ensure compliance with the minimal regulations.

-          It is incorporated in the Cayman Islands - like all the best companies obvs.

-          The business operates largely in China – like all the best companies obvs.

-          Its corporate governance is poor, with two execs and just one non-exec, Nicholas Lyth, who has already has the train-wreck Taihua on his CV.

-          It rejoined the market in February earlier this year having completed the acquisition of SecureCom which has an impenetrable business model to a mere mortal like me.

-          Nevertheless, the recent interims released on 2 October show revenue of £32.1 million, profit of £22.9 million and yet there is a cash outflow from operating activities of £1.66 million and it raised a further £1.2 million as recently as August.

That’s pretty incredible when one thinks about it. One is expected to believe that although it generated profit of over £22 million it cannot generate any cash and in fact has significant cash outflows.

-          For a business that burns cash and has an impossible to understand business, it has a current market valuation of over £43 million.

-          The website is shocking from an investors’ point of view. One is no longer able to access the Re-admission Prospectus, although it can still be accessed via Morningstar, and there is none of the usual key information such as total voting rights and the list of major shareholders.

-          The advisors include the auditors to all the best companies: Crowe Clark Whitehill

What’s not to like?

Last but not least, it has just announced an MOU with the equally opaque disaster-in-waiting, MySQUAR.

I am sure the two of them will be very happy together.

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