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By Cynical Bear | Sunday 5 August 2018
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.
Tom covered much of the nonsense surrounding the FastForward Innovations’ (FFWD) placing last week (HERE) but I wanted to look at how Jim Mellon and Lorne Abony got themselves into that particular mess as they seem to have taken a couple of plays straight out of “star fund manager” Neil Woodford’s book.
For completeness, I will reemphasise two points made by Tom very quickly. First, the fact that this £4 million placing at 13p has taken place so shortly after a share buy-back that acquired over 2 million shares at prices of around 16p and 17p. That is just insane and presume the share buy-back was a mechanism to buy out a particular shareholder or two.
Secondly, and similarly, Lorne Abony cashed in half his stake at 17.6p in March for over £2 million and is now buying in a much smaller amount at 13p. He’s the guy I charge meant to be leading by example!
Both indicate that this isn’t one common-or-garden investment vehicle nor one that cares much for its average retail investor but any close observer would have known that anyway.
However, I wanted to focus on the drastic recent turn of fortunes here and how it has come about. By way of background, one will remember that back in 2015, Neil Woodford was master of the investment universe and raised an astonishing £800 million for his venture fund, not that he called it that, Woodford Patient Capital Trust (WPCT) and then proceeded to spend it all in about 20 months at an incredible rate of £40 million per month. Since then, he has to do two things to keep the plates spinning, namely take on £150 million of debt and sell out of most of the quoted stuff to raised funds to invest in further unquoted cash-burning “stocks”.
That’s why he is now in such a mess and Jim and Lorne have done the same.
Back in June, FastForward was flying high from its very impressive Nuuvera investment which ended up giving them a cash return of about five times their money in a mere 14 months. A great achievement. On 11 June, FastForward announced that it was selling all its Aphria shares (Aphria had acquired Nuuvera) for total cash proceeds of $14.4 million, about £8.5 million, about £1 million of which had been received slightly earlier.
At this point, the company was heavy in cash and the share price after the announcement was just under 15p, which was still a premium to NAV but with such a hefty cash balance and a cracking recent investment, some premium could arguably be warranted.
Then the boys went to town.
On 12 June (the very next day), it announced the there was a further investment in Leap Gaming of €1 million.
On 19 June, the company announced a $2 million investment in Jim Melon’s anti-aging pet project, Juvenescence Limited.
On 22 June, it announced a C$2.3 million investment in crypto-play Vogogo, Inc.
On 9 July, there was a further investment in Leap Gaming of €851,082.
On 19 July, Intensity Therapeutics got a share of the wealth with an investment of $173,061 with an option to invest a further $5 million.
And saving the biggest to last, on 23 July, it invested $6 million in to Factom with the option to invest a further $9 million.
This spending spree from 11 June to 23 July lasted exactly six weeks and, in that period, the boys managed to shell out about £9 million with options to spend a further $14 million. They didn’t actually have £9 million in cash so Lorne had to lend $800,000 to fill the gap.
Spending £9 million in a month and a half is incredible. In absolute terms, clearly not on a par with Woodford but this amounts to about half of FastForward’s market value and its entire bank balance so in relative terms it makes WPCT’s spending habits look rather frugal.
The trouble is that once the money has gone, it has gone and one wonders why Jim and Lorne didn’t sort out the placing beforehand or at least slowed down the spending somewhat. It has raised £4 million, about £3 million after costs and Lorne is repaid so not sure which of the Intensity or Factom options will be taken up with that.
A couple of other Woodford investment tricks at play too. Jim and Lorne have craftily replaced liquid shares / cash with largely illiquid ones – congrats! In addition, it is getting itself pot-committed by being by far the largest shareholder in the likes of Leap Gaming which no-one else has showed any interest in. Can’t imagine why considering it is a sub-scale loss-making game supplier. The Factom investment is hugely risky too. It is portrayed as a bridge to the Factom series B, a raise that was meant to complete towards the start of the year and we’re now in August and FastForward has invested a significant proportion of the current NAV into the investment.
The portfolio as a whole is much like WPCT too, full of largely illiquid stakes in businesses where FastForward is becoming the wallet of last resort for many of them. At 13p, it is valued post-raise at about £21 million, which seems an awful lot for this odd assortment.
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