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By Gary Newman | Tuesday 18 December 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.
The AIM market in general has been performing badly in recent months and it has been noticeable that the badly performing companies at the lower end of it have been struggling to raise capital.
This looks set to continue and I think it is going to get worse, which is bad news for any company which has a reputation for burning through cash without ever actually achieving much of note.
PCG Entertainment (PCGE) is definitely one which I think falls into that category, especially as chairman Richard Poulden has acquired a bit of a reputation for promising much but delivering nothing of real substance so far.
Its website talks about developing opportunities in the media and gaming market in Asia, and China in particular, but as yet the promised deals have failed to materialise, whilst at the same time it has continued to burn through cash at an alarming rate for a company with a market cap of just £1.2 million.
At the start of August the company confirmed that it had in excess of $1 million in the bank, but if we look at the last set of financials for the year ending March 31 2018 we see that it had admin expenses of more than $1.8 million, equating to over $150,000 per month. Although its most recent statement of its cash position does suggest that it has slowed down its burn rate slightly to closer to $100,000 per month.
That implies that by the end of this year it isn’t going to have much more than $500,000 in the bank, if that, and will be out of cash by the end of May at the latest – although in reality it will have to raise more money before then as it had trade payables of nearly $3 million as at the last accounts, with over $200,000 of that being down to social security and tax falling due.
So, the reality is that it will probably be out of cash by the end of March and I would expect an equity issue to be imminent.
Unfortunately for PCG that is going to be a problem given that its current share price is hovering around the 0.1p area (0.09p on the bid now) and its shares have a nominal value of 0.1p, meaning that it can raise at below par value.
With this sort of outfit equity raises are often at a significant discount, so barring a miracle and some actual material good news that leads to a sustained rise in the share price in the very near term, it will have to carry out some sort of share restructuring in order to raise.
There has also been some interesting activity on this share, particularly during November where we saw a flurry of TR1 announcements of increased shareholdings by four private investors – Matthew Fitton, Omar Ahmad, Tomasz Solowczuk, and Mike Joseph.
This caused the share price to rise sharply, but more recently we saw a bit of a sell off, and that included some large trades – relative to the size of the company – with at least one of those amounting to 1% of the shares in issue in a single trade, and there were a number of other large sells.
I believe that the selling has to have been one of these larger holders, given the amount that was dumped, yet there haven’t been any further updates of notifiable shareholdings, which seems very strange as such selling should have pushed anyone offloading below one of the 1% increments and thus they’d legally have to notify the market. Although as we know, the regulation of this is notoriously lax on AIM and we’ve seen plenty of instances where people have sold without notifying the market at the time.
Aside from that – which on its own is a bit of red flag for me and suggests that the flurry of increased holding notifications may have been designed to give the share price an upwards push – I would continue to avoid this company as it looks to be in a very weak position.
Its track record doesn’t exactly point to it securing any major deal which will provide much-needed significant near-term revenue, and in the absence of that anyone holding is likely to face significant dilution. The level of cash burn means that even just to keep the lights on for another four or five months could result in 50% dilution at the current market cap, so I would steer well clear of it.
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