Eight Peaks Group and the Virtuals stock fugazi rolls on
By Mr Karma | Monday 24 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.
It did not come as a surprise that last week Eight Peaks Group (8PG) carried out a new placing given that the company was running on fumes as flagged by us only days before. We were surprised however at Karma Towers that boss Zafar Karim managed to convince more punters (err, investors) and, indeed, NED Lord Monson to throw more good money after bad.
The wording here caught my eye - "Initially, 8PG intends to use the funds to make a further investment in its largest investment, Virtualstock Holdings Limited, by way of a convertible loan with conversion rights and attached warrants." This is all but admitting that other investors in VS are unlikely to participate in a direct equity offering and that a de facto loan with no doubt a conversion term that attempts to maintain the pretence of a "lofty" valuation is the only capital avenue open to them.
The reasoning behind this is to try and keep the "magicians trick" that is the backstop of the Eight Peaks NAV allowing it to raise capital, namely that VS is worth multiples of the current stock price. The market has already seen right through this and I suspect that as 2019 unfolds and the current placing funds disappear down the deep dark black hole that is VS that there will be another capital call. Karim's gamble is that he can levitate the stock from here to get another placing away but as per the previous articles on ShareProphets per HERE there does not seem to be anything in the portfolio that will fulfil this role.
My stance - keep selling as the inevitable placing after placing unfolds next year or, still the very distinct possibility of a de-listing. And don't be waylaid by Karim's investment in the placing - this is simply a recycle of the many hundreds of thousands he has taken out of the company over the years. His lamentable record remains intact. Sell.
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