5 minute read
Why Buy Australian Dual-Trading
why buy AuStRAliAn duAl-tRAding miCRoCApS?
“Buy low- Sell High”, we hear that all the time, it is initiatively obvious, and pretty much the way in which the majority of so-called hedge funds and institutional investors outperform the market.
The term, “Hedge Fund” is often a mis-used description, as most hedge funds don’t in fact “hedge” anything. They prefer to invest at an early or development stage of a company’s growth cycle and use their financial backing and corporate influence to grow the subject company into a much larger business, to then on-sell to later stage investors, or the general public, through a trade sale, an Initial Public Offering (IPO) or into a SPAC. They can do this because of their well-established financial engineering models and depth of expertise in certain industry sectors.
so where does this leave ordinary investors?
Generally, this leaves ordinary investors paying full retail at the IPO stage, when the smart money is already in at a fraction of the eventual issue price.
ok, so how can i get into an investment at an
earlier stage and what are the risks? Investment is always a risk/return equation. The greater the risk the greater the anticipated upside should be, and the converse applies for larger established, dividend paying investments. If you have little, or no risk tolerance, then you are probably not a MicroCap Review Magazine subscriber in the first place! The common idea behind microcap investing is we are all looking for that diamond in the rough, or that undervalued/ overlooked/misunderstood investment opportunity.
how do aussie Microcaps provide superior invest-
ment opportunities? I have opined on this subject before, but simply it comes down to structural differences between US and Australian equity markets. At the top end these markets function fundamentally in the same way. Share prices and markets caps are a function of fiscal performance, industry outlook and earnings multiples. At the earlier, more speculative microcap end, it is more to do with the past track record/credibility of the management teams, the robustness (if that is a real word) of the project and the level of appetite in the market. As a career wide speculative investor I have had investments which have made 10, 20, 50 time return on capital, and I have also had investments where I have lost the lot.
This is only sustainable if the winners exceed the losers and the best way to make that happen is to be diligent, perform your own evaluation and analysis and back credible, experienced management teams. A good management team can make an average project succeed, but a bad management team can kill a great project.
To secure a full listing on the Australian Securities Exchange (“ASX”) a company need only demonstrate net tangible assets of AUD $ 4 million (USD $ 2.84 million) (net of costs of fundraising) OR 12-month Profit from Continuing Operations of $500,000 (USD$ 355,000). Compared to the requirements of NASDAQ or NYSE, companies in Australia are often listed and traded at a far earlier stage. This provides investors with the opportunity to participate at an earlier stage of the growth cycle, with the protection of Continuous Disclosure, Fully Audited Financial Accounts, and compliance with the ASX Listing Rules. There are of course risks associated with earlier stage companies, however investors can mitigate these risks to a large degree by reliance on full and complete market disclosure of material activities.
how do Us retail investors trade australian
shares? Most broker/ dealers have reciprocal arrangements with brokers in foreign jurisdictions, however this can sometimes be more complex and costly and doesn’t work well with online trading platforms. An increasing number of ASX listed entities are bridging this gap by establishing dual trading on the Over-The-Counter Markets in the US and in particular OTCQX and OTCQB. Exemption 12g32(b) of the Securities Exchange Act allows foreign companies who are listed on an approved foreign exchange to apply for dual quotation and trading in the US. This allows US investors to buy and sell shares during US trading hours and settle trades through their existing trading platforms. Most dual trading Aussie issuers are taking the additional step of applying for DTC eligibility which offers faster and cheaper settlement of trades. There is a growing trend with many broker/dealers introducing trading restrictions whereby they are no longer facilitating trading in non-DTC eligible securities.
in December 2019. At the time the application was filed Lake’s stock price was around AUD 3 cents and the market cap was around AUD $ 40 million. After trading commenced on QB, the stock moved up to around 6 cents per share and subsequently 10 cents once DTC was established. A number of positive commercial developments significantly accelerated the share price which reached a high of $1.15 on 1 November 2021. This represented a return of over 38 times on the initial share price. The current share price is AUD $ 0.92 providing a market cap of around $1.1 billion.
Many other of other ASX dual trading companies possess similar upside potential and trade at substantial discounts to their NASDAQ or NYSE peers, this particularly true right now in the area of battery materials and battery technologies.
The Aussies keep coming, look out for them through OTC Markets and keep reading MicroCap Review Magazine for potential superior return on investment opportunities.
Richard Revelins has worked as an international investment banker for over 30 years and specializes in listed public companies. He is a co-founder of Peregrine Corporate Limited based in Australia and is also a Managing Director at Cappello Group Limited based in Los Angeles, USA. He currently resides in Venice, California and divides his time between the US and Australia.
Rick Revelins does not own shares of Lake Resources.
As an example of what can happen when an ASX stock becomes “discovered” and traded on both OTCQB and ASX, Lake Resource N.L. (ASX: LKE, OTCQB: LLKKF) commenced trading on the OTCQB
