One of the big political battles of the day is the battle between the merits of the private and public sectors, with the new Prime Minister Andy Burnham apparently wanting to reverse Mrs Thatcher’s decade of privatisation.
I have been into financial spreadbetting since I first heard about it in 1989 when Lord Cruddas’s CMC (CMCX) was founded. Indeed, he was going to come round to our house to help us (father and I) sign the forms at the time. Since then the area seems to have been a battle between CMC and the OG in the space, IG Group (IGG) . IG was founded in 1974, and one of my favourites Spreadex (still private) in 1999. So having experience of spreadbet companies when either private or public is my thing / obsession.
What does seem to be the case is that listed spreadbet companies, and indeed, many other financial groups, such as stockbrokers / insurance et al, already constantly having to increase profits, and therefore constantly having to run just to stand still.
This was illustrated this week by the lowered revenue outlook for the full year from IG. The result of this was the shares collapsing by over a quarter, adding to the decline at the end of July. So the company has lost nearly £3bn of market cap since the summer. To add insult to injury for much of the recent past X / Twitter has contained negative mumblings regarding the IG trading platform and functionality. One would have thought that with a £3bn plus market cap the company would have the resources to sort out glitches. What will be interesting now in the wake of news of job cuts (presumably to save cash) is whether this state of affairs improves?
In contrast, Spreadex is a private company, with a lower profile that either CMC or IG. But it would appear that private vs listed is a hare and the tortoise race, as well as perhaps being a “keeping your head down” rather than going for profile and maximum profit at all costs – so to speak.
But what the latest IG debacle underlines are some of the issues of the moment. For instance, trading / betting with tax free profits is clear very attractive when tax rates are at record post war highs. CMC’s Spectre product, giving users unleveraged positions on a tax free basis seems to be not only a no brainer, but also something which may have successfully hoodwinked HMRC.
Of course, we know that the profits of spread betting companies comes from the losses of their clients. Therefore, when they go through tough times it may be because some of their clients are winning. This may or may not be the case with the current turmoil in the space, although it has been the case that some of President Trump’s “friends” do seem
to have done rather well in markets like Crude Oil and Bitcoin, in terms of entering in the right direction just before he makes a major announcement.
But overall, it could very well be that the space is hurting because the market had already fully priced in that we are in a golden period for it, and perhaps that the space has become too crowded. One would venture to suggest that some degree of consolidation is required, even though at the moment all those concerned probably want to sweep such an idea under the carpet.
Oxford Biomedica’s “M&A”
I wrote regarding Oxford Biomedica (OXB) a couple of weeks ago, suggesting that it was right in the frame as a M&A candidate. This was no pie in the sky idea, or short term punt recommendation. The start of this year has already witnessed the cell and gene therapy focused group received multiple private equity bids, and at double the share price prevailing last month. In fact, the shares have risen from 457p when the article was published to 544p on Friday. So it was a good call, and perhaps rather tellingly, a call that created almost no interest. One would venture to suggest that Friday’s 6% rise for the shares, on top of the recent re-rate for the shares is a sign that M&A or not, the market feels that the shares should be rather nearer to the £9 level they were in January, than where they are now. The theory in my article was that OXB is not closed to the idea of a takeover, it would just prefer that a sector peer such as AstraZeneca (AZN ) to do the business, rather than private equity.
This Week’s Small Caps
One of the things I have realised in over a quarter of a century writing about the space, that it is very often the companies who look as though they will never rally / get over the line, that then go on to surprise on the upside. When you add to this that a stock with a market cap of £100k is not necessarily one that could be expected to multi-bag, then the “stock picking” or charting off the back of technical analysis is all the more difficult. That said, with Ethernity (ENET) just a few days ago I did suggest that the shares could rally from the 0.0015p zone (yes that many zeros) to 0.0020p plus. This was not just a finger in the wind call. It was based on one of the better charting setups: support for shares above a rising 50 day moving average. Shares of ENT subsequently tripled to 0.0045p in just a few days in the wake of its half year results.
Another riser, perhaps a surprising one, was Hemogenyx (HEMO) , the biopharmaceutical group developing therapies designed to transform blood disease treatment, in the wake of its half year report. Perhaps rather surprisingly, in the wake of revealing a £6.5m loss, the shares were up 40% on the week. So it would appear that the market is still a buyer of the company’s rather long love affair with test tubes / lab work. This is even though it is clear that the process of developing treatments is a long and
expensive one. At least the share price rise is good enough for the company to raise more money, should it so wish.
A company who’s performance is fast shaping up to making it one of the stocks of the year is RentGuarantor (RGG) . The provider of rent guarantee services, which includes property protection, to tenants and landlords in the UK private rental sector, looks to be right in the box seat in terms of its position in the space. Perhaps the recent totally political Renters Rights Act has been a catalyst for RGG’s increased success? But the company was and is already on the zeitgeist with landlords being decimated in recent years. This point was underlined in last month’s trading update.
It mentioned “expanding commercial partnerships” and one would venture to suggest that as little as one national estate agent being mentioned as a partner by the end of the year, could really light a fire under the current already spiking share price. The charting target here is as high as 140p by the end of next month, while we remain above recent support zone at 95p.
Medpal (MPAL) has in many ways been one of the best IPOs of the recent past. Since it came to market in the summer of last year. This is not only because the company has managed to successfully ride the GLP-1 phenomenon, but also because from a standing start it has managed to deliver the fabled hockey-stick spike in revenue that all small cap companies want, but few deliver. The strength of the momentum behind the company has been underlined by the share price performance since the £5m fundraise on September 21 at 5p. The shares closed this week at 7.45p, having traded as high as 8p earlier in the week, and never below the placing price.
A positive factor may have been the way that the MPAL placing was carried out with military grade execution skills by our new friends at the new Crest Corporate Broking, who were the sole broker on the deal. Indeed, they have finessed this win with a rather larger £50m offering and AIM admission for 1947 Oil & Gas (1947) , which listed during the week. Some may know Co-President & Co-Founder Ivan Murphy from his role at Harena (HREE) .