UK Investor Show Magazine August 2016

UK INVESTOR MONEY // SHARES // INTERVIEWS

ISSUE 14 // AUGUST 2016

No We Can’t Why Hillary must lose

Is it P45 time for Lloyd’s Bonk CEO? Adam Reynolds - An exclusive interview Gary Newman’s three resource stocks to buy today UK Investor Magazine — 1 — August 2016

Intro INSIDE 3 It is not about illicit sex — it is about money

Tom Winnifrith 4 Company of the Month: AdEPT Telecom

Steve Moore 5 Seven reasons why Hillary Clinton must not become president

Tom Winnifrith 7 Q&A with Adam Reynolds Tom Winnifrith 9 Are you feeling luck? RBS a buy?

Chris Bailey 10 Three resource shares to buy for August Gary Newman 12 Grab your ticket for the UK Investor Show 2017 14 Three shares to sell in August Tom Winnifrith 17 The House View

CONTACT US UK Investor Magazine 91 - 95 Clerkenwell Road London, EC1R 5BX E: info@ukinvestorshow.com W: www.UKInvestorShow.com EDITORIAL Tom Winnifrith Editor

Welcome to the, again somewhat delayed, August edition of UK Investor Show Magazine and we are now making really massive progress with plans for our show on April 1st (no kidding) 2017 in London. You can read more about that day and also a very special pre-show event on page 12. I would be hoping that Nigel Wray and I will be serving up a stack of announcements about speakers and companies presenting over the next three weeks, if only because I am “blitzing it” now ahead of a period of paternity leave starting, fingers crossed, in mid September.

We live in truly interesting times as far as equities are concerned.

Across the globe stockmarkets continue to reach new highs. Even the old Footsie could hit a new landmark pretty soon. Of course the devaluation of sterling so far this year means that, in terms of global purchasing power, the FTSE 100 has actually been a fairly rotten investment in 2016 but let’s not spoil the bull party by nitpicking. Meanwhile corporate earnings visibility and earnings growth expectations are both heading the wrong way even as share prices soar. This oddity is examined on page 17.

As ever hope that we offer up a few buy and sell ideas to catch your attention. I doubt everyone will agree with all our calls but then it takes two to make a market. The same is true of politics.

I am fully aware that most of you reading this publication will not share my hopes that Donald Trump defeats crooked Hillary Clinton in the American Presidential contest this Autumn.

Europe views US contests in a funny way and it is pretty clear that if we in the Old World were calling the US General Election Clinton would win by a landslide. Europe has voted consistently for leaders since 1970 who have pursued policies which have seen the continent become weaker and less affluent compared to the USA. We in Europe like voting for politicians who will make us poorer, America has historically adopted a different approach.

And that approach has worked.

As ever, I hope that you enjoy reading this publication. Please send any feedback you may have to editorial@shareprophets.com

Tom Winnifrith Editor tomat49@gmail.com @TomWinnifrith

UK Investor Magazine — 2 — August 2016

Lloyds Boss Antonio Horta-Osorio:

It is not about illicit sex — it is about money Says Tom Winnifrith

Lord Browne

Oscar Horta-Osorio

L

loyds Bank (LLOY) boss Antonio HortaOsorio stands accused of having illicit relations with Dr Wendy Platt, Director General of the Russell Group of Universities, whilst at a conference in Singapore. Moralists howl for his sacking for playing away with Dr Wendy. They have it all wrong.

If Antonio wants to play jiggy wiggy with a woman who is not his wife that should not be a concern of his employer. Dr Wendy scrubs up well who can blame the man? He can clearly resist everything but temptation or an opportunity for late night discussions on how to firm up growth rates at Warwick University. But since when does a company get to dictate who its staff get to bunk up with? It is most certainly a matter for Antonio’s Mrs but we do not know the ins and outs of their relationship. And since Antonio has not made any statements about the morality of marriage nor won his job on the basis of any moral platform who he shags is not relevant. You may have a view on infidelity, as a sinner it would be wrong of me to “cast stones” but it has nothing to do with Antonio’s abilities as a bankster.

And thus if Antonio invited Wendy to come and see his share certificates in his luxury hotel room that is none of our business. The issue is who paid for this union.

The bill for Antonio’s stay was £3,276 including two visits to the spa at £550. Dr Wendy was spotted

Wendy Platt

entering Antonio’s room with her own key. The issue is who paid? If Lloyds picked up the tab for a spa session not enjoyed by Antonio but by Wendy and if a room capable of accommodating one rather than two was cheaper and Lloyds paid then Antonio should be fired at once.

For the issue then becomes expense abuse. You may well say that the sums are trivial. The sums involved when Lord Browne paid his rent boy from the BP pay roll when boss. But he had to be fired then. In calling for his dismissal then some, such as the well known progressive Evil Knievil, suggested that I was being harsh on him because of his sexuality. Au contraire. The issue with Brown as with Antonio is, allegedly, misuse of company funds.

If a teller at a Lloyds branch was found to have taken £5 from the till to pay for lunch he or she would be fired. It is not the sum that is an issue it is the principle that a company belongs to its shareholders and if cash is appropriated by staff, however small the amount, then that is theft and the penalty has to be dismissal.

So did Lloyds pick up the tab? The answer is almost certainly yes. If we then discover that there was a cheaper single room at the hotel or that Dr Wendy used one of the spa sessions then there can only be one outcome: Antonio Horta-Osorio must be fired. But, as with Browne, it must clearly be for the money, this has nothing to do with sex.

UK Investor Magazine — 3 — August 2016

company of the month

AdEPT Telecom

A former company of the month going strong, but what now?

By Steve Moore

CEO Ian Fishwick

J

uly saw my company of the month from the June 2015 (first ever) UK Investor magazine, AdEPT Telecom (ADT) announce results for its year ended 31st March 2016 and, having fallen from 270p pre-Brexit vote towards 230p, the shares recover somewhat to end the month at 247.5p. The following updates with these prices comparing to 175p at which I last year noted that the valuation continued to look relatively undemanding.

The company has since made a further (initial £3.5 million) acquisition, though notes “the focus for the coming year remains on developing organic sales through leveraging AdEPT’s approved supplier status on the various public sector telecom frameworks, maintaining profitability and cash flow conversion, which will be used to reduce net borrowings and/or fund suitable earningsenhancing acquisitions”.

To remind you all, AdEPT is a UK provider of telecommunication services, focusing on small and medium-sized business customers with a targeted product range including landline calls, line rental, broadband, mobile and data connectivity services.

There are currently forecasts for earnings per share to increase to towards 22p and the dividend per share to 7.25p – thus suggesting a current price/ earnings multiple of 11.3x and dividend yield of approaching 3%.

The recent results showed an adjusted pre-tax profit of £5.4 million on revenue of £28.9 million, generating earnings per share of 19.57p, up from a prior year 15.76p, and facilitating a 3.5p per share dividend, taking the per share total dividend for the year to 6.5p, up from 4.75p.

On the ‘Nifty Fifty’ subscription site we opted to sell and bank gains as the shares raced above 200p last year – this comparing to a then 197.5p target price, having recommended the shares at a 143p offer price that February.

After particularly £1.1 million of dividends, and £0.9 million of income taxes, paid, together with £7.1 million of acquisition expenditure, net debt increased by £4.4 million to £6 million.

However, post the latest results, I believe those still in here could do a lot worse and that the company’s proven cash generation and experienced management will likely yield further long-term share price upside for the patient.

UK Investor Magazine — 4 — August 2016

7 Reasons why Hillary Clinton must not become President An argument

by Tom Winnifrith

UK Investor Magazine — 5 — August 2016

crease massively.

2.

Hillary and the Clinton Foundation are bankrolled by Wall Street firms such as Goldman Sachs and big businesses such as Monsanto - she is in the pocket of crony capitalists.

That will mean more legislation to protect special interests in a way that suffocates small firms, the lifeblood of an economy, and restricts consumer choice. Wall Street will return to its bad old ways knowing that a friend in DC will bail it out if the gambling goes wrong.

3.

The Whitewater and Cattle futures trading scandals as well as the management of the finances of the Clinton Foundation suggest that Hillary Clinton would be the most financially untrustworthy President since Warren Harding.

The Teapot Dome scandal would be chickenfeed compared to what Hillary has already got up to.

Do you think that she will change her ways once in power?

Y

ou are being told by the media that the election of Donald Trump as the next President of the United States will be a disaster for the US economy and also for Wall Street and stockmarkets around the world. A Trump win might even threaten world peace we are warned. Does this all sound a bit familiar? It should. The same folks who are trying to scare you about the Trump Bogeyman were the ones pushing Project Fear ahead of the Brexit vote. And look how all those scare stories turned out.

In a sense the economic importance of the result of the US General Election is often greatly overstated. Right now the US is about to hit its debt ceiling again soon, housing bubbles are popping in LA, Miami, New York and San Francisco but in the flyover states things have only got worse since 2008. Will it really make much of a difference to such huge macro issues who wins in the Autumn?

I suspect that for all the talk of radical new plans it will not.

However notwithstanding all of that, I offer you seven reasons why Hillary Clinton must not be President. I am not saying that Donald Trump is a dream candidate for he certainly is not. But Crooked Hillary would be far worse for both America and the World. So here goes.

1.

Hillary Clinton buys into all of the crazy Obama tax and spend programmes that leave America spiralling every more rapidly towards a point where its debt burden just becomes unsustainable. There is more chance of Bill Clinton taking a vow of celibacy than of Hillary getting the deficit under control. In fact you can guarantee that a Clinton Presidency will see the deficit in-

4.

The email affairs and proven lies told by Hillary on scandals such as Benghazi show that even by the standards of the political class she is a woman who cannot be trusted to tell the truth. Quite simply Hillary Clinton has taking lying to a whole new level and as such is not fit to be President.

5.

Clinton has been the architect of US military meddling across the Middle East. It is the kids of poor Americans who get sent abroad to have their limbs blown off and middle American has to fund this intervention with its taxes. And it makes America more hated and brings it into conflict with Russia. It is a policy that is costly and makes the USA and the world more dangerous. And Hillary is a cheerleader for such a policy.

By contrast her opponent is a relative isolationist.

6.

Clinton has stated that she will raise taxes on the middle classes although her rich friends on Wall Street will avoid the pain.

This will not drive US economic growth. It is not only regressive and unfair but it is bad news for a stalling economy.

7.

A Clinton Presidency would see American businesses strangled with an avalanche of well meaning but job destroying new regulations on matters such as affirmative action. I am in no doubt that Mrs Clinton means well but since the effect would be to make American less competitive and to destroy jobs it would assist no-one.

That is enough for me. America would be stronger, safer and more prosperous under a Trump Presidency than under the rule of Crooked Hillary. And as the engine of the global economy that helps us all. Let us pray that the USA sees sense this Autumn and ignores the scaremongering of the establishment, the mainstream media, the banksters and big business. The British told the elite where to stick it in our Brexit Poll on June 23rd, let us hope that our friends across the Atlantic do the same in November.

UK Investor Magazine — 6 — August 2016

Q&A With ADAM REYNOLDS Conducted by Tom Winnifrith Tom Winnifrith: Adam, your latest RTO is Concepta (CPT) into Frontier (FRI). What does Concepta, the new business, do?

become International OTC Director of Alere. In addition to the main Board the Operational Board is very strong and is headed by Dr. Robert Porter

Adam Reynolds: Concepta is a UK healthcare company that has developed a proprietary platform targeted at the personalised mobile health market, primarily focusing on women’s fertility specifically those that have unexplained infertility - trying to conceive for more than six months - it is a unique product allowing quantitative and qualitative measurement of a woman’s personal hCG and LH hormone levels in urine samples - effectively it is targeted at women who would probably now be seeking IVF which is hugely expensive - the market is huge estimated 48.5m infertile couples worldwide after five years of trying

TW: How much have you invested and where do you see the shares, now 12p to buy, being at a) Christmas and b) in two years?

TW: It seems to have Chinese links - should I be worried as China AIM companies have not done very well?

AR: No we have very strong Chinese distributors and all funds for product orders are paid up front, we are also targeting Europe and we have commenced our application for a CE Marking, which we should receive in nine months which will enable sales into the EU TW: How soon will it be generating cash?

AR: Within the next couple of months TW: Is the management proven in any way?

AR: Tremendous management team with a wealth of knowledge and experience within the women’s health diagnostics industry, the CEO is Erik Henau ex Amersham and Unipath / Alere and went on to

AR: Personally I have invested £85,000 but my associates have invested a further £250,000. Trying to predict share prices is always difficult but if we deliver I would see them well north of 20 pence per share and if this is followed up with advances in Europe that will only strengthen our rating TW: Is biotech still hot? Have there not been a few problems in the US? AR: The right sectors are still hot and Biotech is always full of risk - what I have tried to do with my investments is to look at opportunities that are as de-risked as possible and within the diagnostics sector you have much more visibility of cash-flow TW: New World Oil (NEW) is another of yours but is not a biotech. Is that you spreading risk or just a great opportunity? What exactly does Big Sofa do?

AR: It is an opportunity that I believe has a huge potential upside, it was brought to me by somebody I had backed a number of years ago who has a very good track record and he had bought 11% of Big Sofa early last year, on that basis I was interested and started doing a lot more DD - what it does and this is a very simplified example is the following: it specialises in video data analysis for major FMCG businesses on a global basis - over the years we have always been asked to fill out surveys either

UK Investor Magazine — 7 — August 2016

by email or telephone, these are hugely inaccurate - what major brands want is to study customer behaviour via video but converted and tagged to a technology that they are able to access quickly Big Sofa has developed this technology and is now expanding dramatically on a global customer basis TW: When might we see some action there?

AR: We should announce end of September, with an EGM mid October TW: Premaitha (NIPT) has been you weakest performer. It goes into court against Illumina soon. When is the hearing and are you worried?

AR: It is scheduled to be heard in June of next year, it would be wrong to say we are not worried but we think we have a very strong case and what is reassuring is the ongoing investigation being carried out by the European Commission into potentially anticompetitive conduct by Illumina and Sequenom in the NIPT market. We have a very good business with some phenomenal opportunities.

TW: React (REAT) is another non biotech of yours and has also been a “slow burner.” What, if anything, will drive a re-rating?

AR: React has grown well by acquiring small businesses for very little money, these were not going to be transforming overnight as they had to be embedded into React’s corporate structure with the aim not to incur any increased fixed costs but

to grow their order books - this is what they are doing and the strategy is very straightforward as these bolt-ons should become very profitable over time and React has kept a strong balance sheet and grown earnings without issuing lots of paper - the aim over the next 2 to 3 years will be to have a business with 6 to 8 complimentary businesses that when React tenders it will be able to cover most works required rather than subcontracting out TW: Is it not just too small? Doesn’t React need to acquire?

AR: As per answer above organic growth driving EPS TW: Finally, when will Optibiotix do a spin off?

AR: Hopefully during Q4 or if not Q1 2017 TW: Is that the only potential driver of a re-rate?

AR: No, we now have 53 patents and growing, the market and big industry is starting to see the opportunities within the Microbiome space and when we came to market 2 years ago it was relatively unknown, we have driven the market and will continue to do so, we are at the forefront of the industry with some sizable opportunities.

FIML, the owner of this magazine, owns shares in some of the companies above.

Tom Winnifrith’s

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newsletters.advfn.com/tomwinnifrith UK Investor Magazine — 8 — August 2016

RBS: “Do you feel lucky, punk?”

Yes I do, and that makes the shares a buy

By Chris Bailey of Financial Orbit

Y

ou can do a lot in 100 days. Back in April I was musing about the large UK banks and puckered up some ‘geek analysis’ on Lloyds (LLOY) which basically suggested a double digit trading opportunity was apparent… and so it came to pass over the next four to six week. A month or so later Brexit and the shares fell out of favour. Despite the grumblings in Lloyds statement last week I am getting similar feelings about an investing opportunity here again. What did I conclude last time?

Buy it today and when you make a total return of 10%+ after costs consider trading out and await an opportunity to re-buy with the announcement of the government placing. Certainly more attractive to me than putting my money into Lloyds bank at 0.1% or whatever they offer depositors nowadays Obviously today you are far less likely to get 0.1% on your monies…and your trading opportunity may well now be greater than 10%+ after costs.

Clearly much depends on what the post-Brexit decision UK economy looks like.

And it is on this front that bad boy Royal Bank of Scotland (RBS) can help out. Stuck between a slide in its presentation deck confirming a cool £1 billion + attributable loss due to £1.2 billion of PPI, litigation, conduct and regulatory losses and the company’s ‘blueprint for success’ (which without irony it has shown before) was a slide showing post-Brexit decision trading in areas like mortgage applications, debit card spending and commercial banking applications…and it has been no disaster.

If only the rest of RBS could be so relatively upbeat.

The reason the shares dropped by over 4% on the

results on August 5 is centred on that aforementioned big loss. The company now holds over £7 billion of provisions on its balance sheet against all sorts of nasties…but it never seems to be enough. They have also confirmed that the required spin-off of the Williams & Glyn UK branch bank network is off.

Yes due to technological complexity they could not even organise a spinoff of something they own.

And yet…and yet. If you were an alien coming down to Earth and presented with the accounts of RBS you would conclude there is actually a good bank straining to get out of the straitjacket of yesteryear. ‘Core franchises’ (i.e. everything sans the bad bits ‘natch) made £1 billion of operating profit during the second quarter and – for the geeks out there for you – a double digit return on tangible assets. Also loans are up – busting through the government-induced target, costs are down and the capital base is improved. Even that ‘Rewards’ account appears to have been a bit of a success. A 180p odd share price but a 345p tangible book value means the still 73% odd government owned bank has shares that you can buy at the equivalent of around 50p in the Pound.

So fill your boots? It just depends on how lucky you feel. How much of that £42bn bad bank legacy book is going to nobble the overall balance sheet?

How about all that outstanding litigation and regulatory whatevers? And then there’s the failed spinoff…let alone any potential impact on bad loans from weaker UK growth and so on and so on. In short I cannot find another FTSE-100 company with such a wide range of potential outcomes.

So one for those who like an exciting life. Most larger cap bank investors will conclude Lloyds has more than enough excitement for them.

Chris Bailey writes at FinancialOrbit.com

UK Investor Magazine — 9 — August 2016

Three resource shares to buy for August Suggests Gary Newman

O

ver the past few months I’ve been fairly cautious on oil and gas in general and it hadn’t been a sector that I was rushing to buy equities in.

But I can now see better opportunities to do so, especially if you are prepared to hold longer term and aren’t overly concerned about the odd downwards blip along the way – which no doubt we will see, given the recent volatility, with some large swings over the space of just a few days at times.

If you also share the view that at some point in the next few years, maybe sooner rather than later, oil is going to return to the sort of levels where producers can actually be profitable and afford to invest in the exploration and infrastructure needed to replace depleting reserves, then I would suggest that now is a reasonable time to be buying.

We’ve seen the sort of lows that I wouldn’t expect to come again – they were off the back of a downwards spiral that had gained huge momentum and overshot, as is often the case.

Although we do still seem to be awash with oil

being held in storage, and not much by way of a reduction in that, I do still see limited downside from an oil price in the low $40 range.

What you do have to bear in mind though is that any recovery in oil prices to anywhere even vaguely close to the previous levels we enjoyed isn’t going to happen overnight, so you need to pick producers which have the funding in place to survive until things turn around, and can do so without having to go begging to the banks and bondholders in order to get covenants relaxed, and breaches overlooked.

At the top of my list currently is a company which I’ve been buying into myself, Genel Energy (GENL) with a share price currently in the low 90s and giving a market cap of just £250 million or so.

UK Investor Magazine — 10 — August 2016

Now this Turkish company which operates mainly in Kurdistan certainly doesn’t come without plenty of risk attached. The whole region still resembles a powder keg that could go off at any time, but things do seem to be improving in the areas where its oil fields are located, even if the failed coup attempt in Turkey didn’t exactly help sentiment here.

There is also risk when it comes to actually getting paid for the oil produced, as that comes from the Kurdistan Regional Government, and at low prices (much under $40) it struggles to pay its bills for much other than the military.

The upside though is that its Taq Taq and Tawke fields are on track to continue to produce 53-60kbopd of oil during 2016, and it has been paid for a good number of successive months now.

Add in the possible upside from the Miran and Bina Bawi gas assets, which have the potential to be huge once developed, and operationally everything looks good – despite a downgrade to Taq Taq 2P reserves earlier in the year (that is still 356mmbbls, with Genel having a 44% interest).

Financially it also looks in decent shape compared to many producers which are saddled with huge amounts of debt, as it had $406 million in the bank as at the last financials, and the outstanding $643 million in bonds aren’t due until May 2019.

So overall I see the potential upside as justifying the risk here, and the company will do well on any sort of sustained oil price recovery, or any positive news relating to funding of the KRG via international agencies.

Another on my list of long term holds is Ophir Energy (OPHR) which has been a favourite of mine for sometime, yet has never really delivered.

There has been little in the way of news recently and the share price has traded around the 65p to 75p area for some time now, and is back towards the bottom of that range, which I see as a buying opportunity.

The company has little in the way of debt, and that which it does have was inherited during the takeover of Salamander Energy and its assets in Thailand and Indonesia, which produce around 13,000boepd and with a breakeven of circa $15/ barrel.

That is a useful source of income, but it is really its gas assets in Africa which will make or break the company, as they have the potential to be huge.

The Fortuna FLNG project in Equatorial Guinea took a hit when Schlumberger announced that it had terminated the heads of terms agreement

for upstream participation, but the company is continuing to push ahead anyway and had reduced CAPEX to get from the final investment decision to first gas, with that now estimated at $450-500 million, down from $600 million previously. Its other partner in the project, Golar, is still onboard, but first gas isn’t expected until 2020 and needs a $40 oil price to breakeven – the FID could well come later this year and would be a huge boost to Ophir’s overall oil and gas 2P reserves.

It also still has a 20% share in a huge FLNG asset in Tanzania, although not a lot currently seems to be happening in terms of moving that towards development, but the company did manage to sell 20% of it for $1.288 billion a couple of years back!

Cash balance at the end of 2016 is expected to be around $525 million, which is enough to cover all of its debts and still have a few hundred million left over, so I see this as a company that can ride out even a sustained period of low oil prices.

Last on my list is a much smaller company

which is yet to enter production, but which once again has the cash reserves to survive, as well as having assets that have been proven and with large partners in place to develop them, that company being Bowleven (BLVN).

Its Etinde asset in Cameroon has already been farmed out to Lukoil and New Age, with Bowleven retaining 20%, and ultimately that deal should be worth around $250 million to the company – it has received $170 million of that so far and still had around $100 million of that left at the end of 2015. A further $15 million is due to be paid to the company at the end of September this year as well.

Two further appraisal wells are planned, which will be funded up to a $40 million carry for Bowleven, and development of the field is being discussed, including with the Cameroon government.

Elsewhere the drilling of two wells on the Bonomo licence was a success, and although the 5 to 6mmscfd of gas that was flowed for an extended period isn’t earth shattering, it will still be a handy earner for the company and an application for a development licence was submitted last December – this can take a long time to process in Cameroon, as we saw with Etinde, so it is anyone’s guess when news on that will come, but it could be soon.

The share price has been languishing down around 22p for some time now, and with cash in the bank more than covering the current market cap I think it offers value as a riskier long term play over several years.

UK Investor Magazine — 11 — August 2016

A Golden Evening at Saracens in March

The UK Investor show is now jointly owned by the Wray and Winnifrith families and the 2017 event is on April 1st at Westminster and you can book your tickets now at www.UKInvestorShow.com But there is also another event at 7 PM on Wednesday 29 March at Saracens RFC which those holding a gold ticket will be able to attend joining the CEO’s of all the presenting companies.

Investor Class tickets to the show cost £10 + VAT while the 120 Gold tickets to the show and Saracens Cabaret cost £75 + VAT. But if you book your seat before September 1st 2016 using the promotional code SEP16 you will get a 33% discount on all seats purchased. You can order online with tickets despatched on receipt of payment at www.ukinvestorshow.com.

The cabaret evening will see you wined and dined in style with a number of the star players at Europe’s top club side, Saracens, seated at each table. Chapel Down wines will be organising blind tastings of its English champagne and on stage we have two totally unique acts.

We start with Tom Winnifrith in discussion with Britain’s Buffett and Saracens Owner Nigel Wray and his long time business partner, the enfant terrible of UK Property, secret millionaire Nick Leslau. The three men were last “in conversation” at a Saracens breakfast eight years ago and there is a lot to catch up on. This will touch on shares but is a far

more wide ranging insight into how two of the UK’s most successful businessmen see life, politics, the economy and (lack of) business ethics in 2016.

To follow that we have Christopher Booker, who was the co-founder of Private Eye and scriptwriter for TW3 as well as being a top read columnist on the Sunday Telegraph. Booker still writes for Private Eye 55 years after its launch and will spend 45 minutes reviewing his favourite front pages over the past half century or so and explaining why they still make him laugh and chatting about the changing ways we view satire and satirists view us.

Golden ticket holders to UK Investor show also get guaranteed front row seats in all sessions as well as a ticket to the after show party with CEOs and speakers on the day of the event, that is, no kidding, Saturday April 1st 2017. UK Investor is the country’s top one day investor show featuring top name speakers such as Mark Slater, Peter Hambro, Evil Knievil, Paul Scott and of course Nigel Wray. And there

(Left) Nigel Wray (Right) Nick Leslau

UK Investor Magazine — 12 — August 2016

Private Eye co-founder Christopher Booker will tell of his favourite Private Eye covers of the past 50 years

will be a chance to meet more than 110 PLCs in what promises to be our biggest, best and most controversial show yet.

Investor Class tickets to the show cost £10 + VAT while the 120 Gold tickets to the show and Saracens Cabaret cost £75

+ VAT. But if you book your seat before September 1st 2016 using the promotional code SEP16 you will get a 33% discount on all seats purchased. You can order online with tickets despatched on receipt of payment at www.ukinvestorshow.com.

Saracens UK Investor Magazine — 13 — August 2016

Three shares to sell in August The best time to kick a man is when he is down

By Tom Winnifrith

W

ith equities racing towards all time highs it is not that much fun being a bear right now. Of course the insanity must end, valuations are simply crackers. They might get more crackers before there is a blood on the streets and a correction but there will be such a correction. It is a matter of when not if. Pro tem there are still opportunities to be had for the bear - you cannot completely defy gravity however fevered is the bull market.

But fevered it is, and not just in the UK. I bring you an article from the American website Wolf Street which is just stunning: How stock market jockeys could be this stupid has boggled our minds for years. One thing we know: it doesn’t matter as long as stocks soar. But when a stock suddenly dies, after having dutifully contributed to Ben Bernanke’s “Wealth Effect” miracle, the occasional regulator might step in and tell these folks: “How could you?!” And this is what happened today.

The SEC announced that it “temporarily suspended trading in the securities of NERO,” the ticker symbol for NeuroMama, whose shares are traded over-the-counter in the Wild West of US stocks, where just about anything goes, even more so than normally. The outfit had no sales in 2012 and 2013, the last two years for which it filed “financial statements” – in quotes because there’s practically nothing financial in them. Maybe a mailbox company.

And yet, amazingly for rational minds, its shares traded well above zero in 2014. Last year, they jumped into double-digit territory. And over the past few months, they spiked to $56.25 a share, giving the company a market capitalization of $35.4 billion. This is a lot of fictitious moolah idling in people’s idea of their own wealth. They’ll get to enjoy it until August 26, when the trading halt may be lifted, and when the brutalized short-sellers are finally going to have a field day.

The company does have a fancy website. It lists, for example, under the “1st Reason to Invest” in it, a lot of blah-blah-blah about how it was a “search engine on allin-one internet platform,” followed by similar blah-blahblah, including this gem: “The highlight on all-in-one internet platform is NeuroZone a clone of Amazon and EBAY.” Then there’s the “2nd Reason To Invest: Capital Acquisition,” followed by even more daring blah-blahblah that starts this way: NeuroMama has Service and Financing agreement

with Global Media and Internet Company, which guarantees $20 million dollars in financing to execute NeuroMama business plan over the next 16 month. You’d have to be functionally illiterate not to get what this is.

It just takes a glance! Now, after so much money has been extracted from these hapless stock jockeys’ pockets, the SEC offers this laundry list of issues: Accuracy and adequacy of information in the marketplace about, among other things, the identity of the persons in control of the company’s operations and management; False statements to company shareholders and/or potential investors that the company has an application pending for listing on the NASDAQ Stock Market; And potentially manipulative transactions in the company’s stock.

Intrigued, Bloomberg got on the phone with Steven Zubkis, “the marketer behind NeuroMama, according to the company’s website.” “We’re in an industry that has high valuations,” he told Bloomberg, citing the company’s social network and oceanfront property. Yup. The perfect explanation, heard so many times on Wall Street. He “also goes by Steven Schwartzbard,” and according to Bloomberg has a fascinating history: He left prison in August 2010 after being sentenced for five years for defrauding investors, in a $1.8 million scheme through misrepresentations tied to the renovation of a Las Vegas casino. The Ukrainian immigrant was sued by the SEC in the 1990s for orchestrating a $12 million penny stock scam. He was ordered to pay more than $21.6 million in disgorgement and penalties for selling unregistered securities from 1993 to 1996. So how can an outfit like this hype its shares to enough gullible stock jockeys to reach a market cap of $35 billion?

It’s easy. It happens all the time. Some companies are like NeuroMama that the SEC eventually catches on to. Other companies have legitimate products and sales, and they’re working hard but lose a ton of money, operating on the paradigm that the more they sell, the more they can lose, despite rich government subsidies.

Yet their shares and market cap reach levels that are so irrational that you can’t even have a rational discussion about them because rationality no longer applies, while the biggest banks on Wall Street promote them ruthlessly in order to extract maximum fees. Tesla comes to mind.

Even the broader stock market has moved into the gray area beyond rationality, ruled by hype and “adjusted”

UK Investor Magazine — 14 — August 2016

earnings and monkeyed accountings, financial engineering, and feverish hopes for central-bank market manipulation. Everyone loves a rigged market, as long as it’s rigged the right way. We’ve come to call it, “consensual hallucination.” When something like NeuroMama blows up, or when a former darling goes bankrupt and destroys its equity investors, or when entire markets crash, it only hurts those fools that weren’t able to get out in time. As a lot of this fictitious moolah that forms people’s idea of their own wealth goes up in smoke, Wall Street goes on, already working on the next spike in one stock or another, and preferably a “melt-up” of the entire market, which makes life a lot easier because you don’t have to pick the next winners in this sea of fantasy numbers.

And that my friends is the world of August 2016. But in the end fundamentals will destroy companies that just burn other folks cash, they will simply run out of other people’s money and go bust. And that brings me to the three stocks to short for August.

Shares in AVANTI COMMUNICATIONS (AVN) raced ahead to almost 50p on a report in the FT That rival Inmarsat (ISAT) would pay 140p per share for the drowning in debt satellite operator.

Inmarsat has said its not bidding and Avanti shares are back at c40p. The company needs to raise $50 million of equity and $70 million of debt pronto or it will be out of cash by the Autumn. Its existing bonds yield 18%. They are in junk territory. That is telling you that however much Avanti hawks itself as being for sale any bidder will take a haircut on

the bonds. Hence the equity is worthless. Avanti features here most months, but one month soon I shall be writing its obituary.

Next up is a newcomer to this column, SOUND ENERGY (SOU) which has recently announced what looks like a pretty decent gas discovery at Tendrara. Right now it is flowing at the oil equivalent of 850 boepd but one senses that further drilling will up that number. Sound has a 27.5% stake in the asset. The shares have raced on this news to 53p valuing the company at £280 million which is way ahead of events. Sound has debt, is burning cash and will need cash to develop Tendrara, the shares discount none of that just blue sky dreams of Bulletin Board fantasists. Ahead of an inevitable placement the shares are a sell.

Finally back to an old favourite BLUR (BLUR) which has just served up another truly dismal set of results, this time for the half calendar year 2016. $2.8 million was sent to money heaven in that period and year end cash was $4.3 million.

The company is, as always, optimistic although its historic record of non delivery means that I do not share that optimism. There is not a cat in hell’s chance of the calendar 2016 accounts getting a sign off without an emphasis of matternote as, by March 2017, all the cash will be pretty much gone. The only question is whether the next bailout placing is before or after Christmas and how big will be the discount the bucket shops demand? Either way, at 7p, the shares are a slam dunk sell.

Hot Stock

ROCKETS Stocks Ready to take off hotstockrockets.com UK Investor Magazine — 15 — August 2016

the house view Equities Rocket but Fundamentals tank

T

he stockmarket is a surreal place right now.

Good news is viewed as good news and stocks surge. Bad news is treated as good news and stocks surge. Any suggestion that valuations are becoming increasingly divorced from reality is treated with disdain: “It is going to be different this time”. Well folks: it won’t be.

has clearly fallen the P element has soared. That is because bad news ( slowing growth) is viewed as good news by stockmarket jockeys who expect the authorities to respond with interest rate cuts into negative territory and more printing of funny money: QE. We suspect that the expectations of the speculators will be met.

We all have opinions but some facts are clear notably that the growth in the world economy has decelerated sharply over the past six to nine months. That slowdown pre-dated Brexit but for whatever reason - has accelerated sharply in recent months. It is a global phenomenon. And that means two things for the stockmarket.

But will cutting base rates from 0.5% to 0.25% or even lower make any difference? And if it does for how long. At some stage the massive capital misallocation that has taken place since 2008 will have to unwind, non viable businesses will have to close, the over-extended speculators will have to take the pain.

Firstly corporate earnings visibility has diminished, that is to say you will get more nasty shocks, and corporate earnings growth over the next 24 months will be less than we were expecting.

Secondly it means that more and more companies that have over-traded or which are simply pursuing unviable business models will meet their maker over the next two years.

The valuations of equities across the West have become ever more stretched, the bubble has expanded that bit more. Of course that is not to say that the bubble cannot keep growing for a bit longer, that is the nature of all bubbles. But in the end the insanity must end and bubbles do not deflate gently.

But though the E element of the prospective PE

Caveat emptor.

UK Investor Magazine — 16 — August 2016