UK INVESTOR MONEY // SHARES // INTERVIEWS
ISSUE 6 // NOVEMBER 2015
Corporate muckraker Tom Winnifrith’s secret of success
“See you in court, Bitchez”
The Zak Mir interview
John Gunn, CEO Inpirit Energy Chris Bailey on BP: one to add to the pension?
Malcolm Stacey on ethical investing UK Investor Magazine — 1 — November 2015
Intro
INSIDE 3 The trigger for a rally in gold is…. Amanda van Dyke 4 Gold & Bears Show 2015 7 Motif Bio – Averting Calamity! Barry Gibb & Andy Senga 10 BP - One to add to the pension? Chris Bailey 11 Company of the Month: Prime People Steve Moore 12 Make Some Good Clean Money Malcolm Stacey 13 Cover story: See you in Court Bitchez! Tom Winnifrith 15 Seven stocks which could be suspended Nigel Somerville 18 What hope for AIM’s off shore Ireland oil explorers? Ben Turney 20 Three shares to buy for November 23 CEO interview John Gunn of Inspirit
Zak Mir
Zak Mir
26 Four shares to sell for November Tom Winnifrith 28 The House View Tom Winnifrith
CONTACT US UK Investor Magazine 91 - 95 Clerkenwell Road London, EC1R 5BX E: info@ukinvestorshow.com W: www.UKInvestorShow.com EDITORIAL Tom Winnifrith Editor
A Message from Tom Winnifrith Welcome to the latest edition of UK Investor Show magazine and once again I hope that we have something for everyone. Share tips to buy from Zak Mir, Chris Bailey and Steve Moore and some sell ideas from myself and Nigel Somerville. Ben Turney contributes an interesting review of Irish oil prospects while Amanda van Dyke (again) calls the bottom on mining stocks. To be fair to Miss Van Dyke many Aussie gold stocks have gained 50% or more in the past few months. That is a currency quirk but it shows that mining stocks can go up as well as down. Gold and mining shares are of course on our mind as we approach the first ever Gold, Bears & Traders show in London on November 28. There will be around 50 companies presenting but also an awesome array of main stage speakers ranging from Jim Mellon who will focus – I suspect – on currencies and biotech through to Mark Littlewood on the toxic crack cocaine that is debt. Bears are flying in from Australian and the US to join our home grown bears in what will be one of the most impressive short selling seminars London has ever seen. And the gold speakers are also flying in from the US and Holland to join home grown talent on the day. Full details are on page 6 and you can get a complimentary investor class ticket as a reader of this magazine by going to www.goldandbears.com and using the promotional code UKIMGB when ordering. I very much hope to see you in London on Saturday November 28. Meanwhile it has been an exciting month for me on both the long tack with some big wins such as Berkeley Energy and Optibiotix and also on the fraud busting tack with Globo. It is always dangerous to be on a “roll”. Over-confidence is a dangerous thing. I find myself subscribing a small amount in a placing. I admit I have done no research at all but a trusted source says it will come good. I bloody well hope it does. On sober reflection – and I have been sober all day – it was perhaps rash. But the deed is done. It is too late now. I now that I can afford to lose the small amount punted but I shall kick myself anyway. Perhaps it would almost be a good thing were that to happen. Overconfidence is a dangerous thing and you should never invest in something without doing your homework however good the tip. I guess time will tell. Meanwhile I hope you enjoy the magazine and don’t forget to book your ticket to www.goldandbears.com for November 28. Best wishes Tom Winnifrith UK Investor Magazine — 2 — November 2015
The trigger for a rally in gold is…. By Amanda van Dyke
A
dversity in the financial markets is the trigger that will force the general investment world to become interested in gold again.
There are machinations taking place in China and at the Federal Reserve right now. Monetary policy has forced investors into riskier assets. When the tables turn and people start experiencing losses they run for the cover of liquidity and insurance.
rather than on the strength of the market. Similarly taking an asset and putting it into production, significantly changing your debt situation or changing your position on the cost curve. Single events can change the outlook and seriously de-risk a project . When it gets recognized you get much more of a return on a junior than you would in a large-cap name.
There is loss of confidence in the Fed and a general downturn in financial markets, which is long overdue. That is when investors will look at safe places to go. Gold has always acted as wealth insurance. Whenever we have had extreme financial events throughout history, gold has always been the last man standing. Gold’s purchasing power lasted through the crisis in 2008 and every crisis before that. When the gold price begins to move the majors as a group will move before the juniors. They will be the first ones to be repriced. To make money in the short term though you need to be a stock picker in this market and the smaller companies offer a better return than the large caps do. With the mid and smaller caps, there’s more value creation for mine building and discovery of new reserves. It moves the needle more than you could get in a large-cap company. Those are very identifiable events. In large cap companies there are so many more moving parts and significant developments are often obscured in the mix of assets around the world. A single a discovery or mine going into production isn’t going to change the outlook of a larger company. But with the mid- and small-cap companies, a big discovery is value creating. If a junior finds a worldclass asset, it will rise based on its own success
There is 3 essential criteria you need to look for in juniors that are going to re rate. Value changing events and catalysts, companies that are in the bottom half of the cost curve (as in they will be producing at a profit margin no matter what the commodity price), and an excellent management team that is invested heavily in the company. There is no better place to meet management teams than a conference like Gold Bears and Traders. There are some great companies out there, with commercial assets that can be put into commercial production even at these prices, where investment dollars, will go directly into creating shareholder value. You have the time to do your homework and seriously analyze which mining companies are of good value and have the kind of management teams capable of creating value for shareholders. I hope people at the show will walk the booths and ask questions and hold management teams to account. That is how you will figure out which companies are going to perform and which companies will not. It’s as simple as that.
UK Investor Magazine — 3 — November 2015
Gold, Bears & Traders Show, London November 28 – now 77% sold out – book your free seat today!
T
By Tom Winnifrith he Gold, Bears & Traders show is now less than4 weeks away and with bear raider Gabriele Grego, jetting in from New York we now have a truly international all-star line-up – I hope that you will be joining us at the QE2 Centre in Westminster on November 28.
The show is – as of November 5 – almost 80% sold out. We have 25 free tickets worth £12 each for readers of UK Investor Show Magazine – if you want one of those tickets just go to www.goldandbears.com and book an investor class ticket using the promotional code UKIMGB.
To get your free ticket just go to www.goldandbears.com and book an investor class ticket using the promotional code UKIMGB. And there is more. In 100 seater breakout rooms there are special presentations including Amanda Van Dyke on which gold shares to buy, myself on China Fraud, Zak Mir on Trading. Myself and Jason Drummond on tech fraud and Dominic Frisby on Bitcoin And more than 50 CEOs will also be manning booths as well as giving PLC Presentations throughout the day.
The main stage programme for the day is now finalised: 8.45 AM Doors Open 9.30 Tom Winnifrith – a few jokes 9.45-10 30 John Hempton (legendary Aussie bear raider) 10.30 - 11.15 Gold panel chaired by Amanda van Dyke with Dominic Frisby
November 28 promises to be a great day and the Gold and Bears show is as of November 5 almost 80% sold out. To get one of 25 free tickets on offer today just go to www.goldandbears. com and book an investor class ticket using the promotional code UKIMGB.
11.15 -12 Jim Mellon, Sunday Times rich list 12-12.45 Mark Littlewood (IEA – debt is not the answer to more debt) 12.45-1.25 Sam Antar (US fraudster turned fraudbuster) 1.25-2.00 mining panel chaired by Amanda van Dyke with Zak Mir 2.00-2.40 Lucian Miers, Matt Earl, Graham Neary & Tom Winnifrith – 2 big name stocks going to 0p
See you in November 28.
2.40 to 3.15 Gold guru Willem Middlekoop 3.15 to 3.45 Gabriel Grego, the Globo destroyer 3.45 - 4.45 Tom Winnifrith and Evil Knievil, the heavyweight bears
UK Investor Magazine — 4 — November 2015
London
on
UK Investor Magazine — 5 — November 2015
GOLD BEARS &T R A D E R S
Star speakers from the world of commodities and investment including Zak Mir,Zak Amanda van Dyke, Mellon, Evil Mir, Amanda vanJim Dyke, Knievil and Tom Willem Middelkoop andWinnifrith Tom Winnifrith.
Meet and chat to gold and commodities companies, their CEOs and Chairmen. Tickets half price for limited time. 28 November 2015 QEII Conference Centre, Westminster, London goldandbears.com UK Investor Magazine — 6 — November 2015
Motif Bio – Averting Calamity! By Barry Gibb and Andy Senga Research Analysts, Beaufort Securities
I
t is hard to exaggerate the crisis looming in antibiotics. The World Health Organisation has raised the spectre of a potentially apocalyptic nightmare just around the corner, when common infections and minor scratches routinely become fatal. The WHO quite blatantly states that the growing ineffectiveness of mainstream antibiotics against new superbugs now poses a calamity bigger and more urgent than the AIDs epidemic of the 1980s. Simply put, the way these drugs have been used, and abused, over past decades now means doctors stand to lose their ability to protect human health unless urgent action is taken. In the absence of any new types of antibiotic being developed for the past 30 years, a high profile UK-government appointed review team, headed by economist Jim O’Neill, is now urging the global pharmaceutical industry to establish a US$2bn research and innovation fund to seek an urgent solution. Yet, drowned out by all the background noise, a novel drug development by AIM-quoted Motif Bio plc appears to be delivering precisely this prescription. Importantly, its flagship late-stage antibiotic, iclaprim, targets an underutilised mechanism of action making it less susceptible to triggering antibiotic resistance in humans. Having already been trialed on over one thousand patients, thereby providing considerable evidence to support its safety and efficacy, iclaprim has now got the goahead for Phase III trials for two initial indications, with a pipeline of further developments to follow. Clearly iclaprim could never be the complete solution to the problem, but it does look to become one important step for a global population now running out of choices. Addressing a market that appears set to grow significantly from the currently estimated US$40bn of annual sales, not surprisingly commercial interest in antibiotics has recently taken off. With its immediate needs
adequately financed, Motif can be expected to demand that Big Pharma rewards its shareholders handsomely when it comes begging for a slice of the action. So is it time to panic? No, but if the civilised world fails to get to grips with the problem within a couple of decades, hospitals could look very different places indeed. Antibiotics are a pillar of modern medicine. In the US alone, the Obama administration and the US Centers for Disease Control and Prevention estimate that right now antibiotic-resistant infections annually lead to 23,000 deaths, 2 million illnesses, US$20bn in excess direct health costs and US$35bn in lost productivity from hospitalisations and sick days. Based on current trends, by 2050 some 10 million people will have died from pathogens that can simply ‘outmanoeuvre’ existing antibiotics. Dramatic over-prescription, their extensive use in animal husbandry, and the failure of pharmaceutical companies to invest in new therapies, have compounded to place the medical world where it is now. Recognising the risks, some food producers and purchasers are already turning away from antibiotics, but clearly further urgent action is required to develop a number of new and different antibiotic classes and mechanisms to combat resistance. Incentives need to be put in place to
UK Investor Magazine — 7 — November 2015
encourage pharmaceutical industry research, while physicians should be directed to write fewer prescriptions wherever possible, seek to diagnose illness faster, while targeting remaining effective antibiotics to be used more appropriately and, perhaps, even seek new infection-curing techniques. But policing such an overhaul in long-established medical practice would, of
then followed in 2013 with the ADAPT (‘Antibiotic Development to Advance Patient Treatment’) Act, which additionally provided the ability to approve antibiotic drugs for narrow patient populations, based on less stringent standards of approval deemed appropriate by the FDA.
course, be highly complex and difficult to enforce, meaning that the immediate focus has to remain in establishing a series of new, safe and effective pharmaceutical solutions.
Motif’s flagship antibiotic, iclaprim, is among the handful that gained from the new legislation, with the FDA approving commencement of Phase III trials in summer 2015. Other antibiotic development programmes that were terminated in the 2007-2010 period have also subsequently been resubmitted under the GAIN Act, with favourable outcomes. These include:
And the real reason why the antibiotic pipeline remains almost empty? As might be expected, it’s mostly commercial. Since the 1980s, most major pharmaceutical companies moved away
from developing antibiotics due to their relatively low profitability. Unlike drugs that treat chronic illnesses, such as diabetes or cardiovascular disease, most infections are treatable with a short one-off course of a given antibiotic. The result has been thirty years of underinvestment. As a result of the overwhelming need for novel antibiotics, governments and regulators globally have finally begun taking action to better incentivise and facilitate the development of these drugs. Notably, 2012 saw the passing of the GAIN (‘Generating Antibiotics Incentives Now’) Act in the US to create a regulatory framework that better encourages development companies to research antibiotics. The Act ensures that novel solutions receive clearer clinical trial guidelines from the FDA, accelerated approval times and extended market exclusivity. The GAIN Act quite drastically changes the FDA’s stance on antibiotics, evidenced by the fact that four antibiotics that were not approved prior to its implementation have now either progressed to approval or are approved to conduct further Phase III trials. It was
Several other international regulators have also taken similar actions. Representing the EU, in January 2012 the European Medicines Agency (‘EMA’) updated its guidance to companies developing antibiotics, covering how they should carry out their studies. This was subsequently accompanied by a further addendum giving information on how to study medicines for specific indications. In the UK, the House Of Commons Science and Technology Committee Report on Tackling Antimicrobial Resistance notably recommended ‘improving clinical trial regulation’ to encourage the development of novel antibiotics. Others are expected to join the chorus in the coming years. iclaprim - An under-exploited mechanism of action Motif’s lead drug candidate, iclaprim, tackles resistance by targeting an under-exploited pathway in antibiotic drug development, namely
UK Investor Magazine — 8 — November 2015
the folate pathway. Interference with this pathway inhibits DNA synthesis, a crucial mechanism for cell survival. Such drugs, known as dihydrofolate reductase inhibitors (DHFRi), bind to the enzyme dihydrofolate reductase and hinder its action. Iclaprim’s affinity for bacterial dihydrofolate reductase is several thousand times greater than its affinity for human dihydrofolate reductase, making it lethal to bacterial cells but not to human cells. DHFRis are less likely to trigger resistance, as there is only one currently approved medication that exploits this antibacterial mechanism of action, namely the generic drug Trimethoprim. In comparison, popular classes such as Penicillins and Cephalosporins, which have seen several
generations of copy-cat drugs, have become victims to widespread resistance.
Motif ’s Board, led by CEO, Dr Graham Lumsden, together with their exceptionally experienced Advisory team, is planning initially to pursue two MRSA indications for iclaprim, namely Acute Bacterial Skin and Skin Structure Infections (‘ABSSSI’) which is expected to take some 18 months to complete its Phase III trials, and Hospital Acquired Bacterial Pneumonia (‘HABP’) which is expected to take about three years. Having been awarded Qualified Infectious Disease Product status back in July, upon commercialisation these indications will be entitled to 10 years of market exclusivity in the US; they are also expected to be awarded 10 years of data exclusivity in Europe. These
provide Motif with significant additional protection against copy-cat developers. The Group has already identified a pipeline of further potential indications for iclaprim.
But how does one value such an opportunity? Not surprisingly, commercial interest in antibiotic developments has recently taken off. There have been several recent mergers in the space, most notable including the acquisition by Merck of Cubist Pharmaceuticals in a total deal of some US$9.5bn (December 2014). Substantial partnering deals for antibiotics have also been struck, including a deal between Bayer and San Diego-based Trius Therapeutics involving up to US$200m in payments. So how might one value Motif ? It has already secured post-IPO funding sufficient to cover most of its planned Phase III trials for skin infections before, hopefully, filing it as a ‘New Drug Indication’ with the FDA. This is the most obvious entry point for Big Pharma who, without doubt, will already have looked closely at iclaprim and assessed its global market opportunity. And, given that completion for ABSSSI might be anticipated during 2017, investors will probably not have to wait too long for a decision for the first expressions of interest. While discounted cashflow and other such financial modelling could possibly create a valuation for iclaprim, the size and significance of Motif ’s prospective opportunity is likely to be seen to befuddle such an approach. In which case, peer group comparisons tend to provide the most realistic assessment. Paratek Pharmaceuticals, Inc. (NASDAQ: PRTK), appears to be Motif ’s closest peer, having a similarly advanced antibiotic development product also in Phase III trials. It also comes with a similar history. Right now, Paratek, is valued at around US$350m, or almost four times Motif Bio’s current market capitalisation. That is probably a good point to start from.
At Beaufort Securities we offer a bespoke advisory service. Our people are dedicated to the markets day in and day out for one reason and one reason only - to help our clients profit. To discuss your strategies with a broker, please call us on 020 7382 8384. Beaufort Securities Ltd is authorised and regulated by the Financial Conduct Authority, registered number 155104 and is a member of The London Stock Exchange and ISDX.
UK Investor Magazine — 9 — November 2015
BP’s dividend maintenance dance - one to add to the pension By Chris Bailey Financial Orbit
T
he global mega cap energy sector reporting period kicked off with BP (BP.) reporting ‘underlying profit of US$1.8bn for the third quarter of 2015, up US$500m on the previous quarter, along with plans to rebalance its financial framework and grow value long term’. Well that sounds like something for everyone then: profits sequentially up and more than a hint or two about the importance of remunerating it shareholders. As consistently noted over the past six months, professional fund managers have been almost pathologically concerned about commodity sector investing opportunities. As is often the way with such matters, their lack of enthusiasm reflected lagged performance realities and unsurprisingly such caution peaked simultaneously with the opportunity to buy quality large cap commodity facing businesses with good balance sheets, sensible assets and - most strikingly of all - high dividend yields. Having noted the opportunities in names such as BHP Billiton (BLT) and Randgold Resources (RRS) during the late August to late September period it is not too much of an extension to look at an energy behemoth like BP. BP has had more uncertainty than many with continuing lingering fears about legal costs and related from its Gulf of Mexico spill of a few years ago and a messy marriage of convenience with Rosneft in Russia, even before you add in energy price level concerns. To the credit of management however their response has been pretty much textbook: copious amounts of PR puffery, only a partial rolling over in their relationship with the Russians and divestment and capex cuts to ensure that their
big priority of keeping the current dividend can be maintained. Thes results show that such initiatives are working and income hungry investors can breathe a sign of relief with the near 7% dividend yield seemingly in the bag for another year. It is still tight with gearing right at the top of the company’s 10-20% preferred range but I would rate it still workable even if energy prices remain sloppy for a while longer. The reason for this are the continuing cuts in capex and good progress with the company’s US$10bn divestment target. None of this can be sustainable or good news forever as oil fields deplete over time and ultimately BP need both upstream and downstream operations that are firing on most cylinders. The better news is that as almost all oil companies are responding to the current environment by cutting capex and making divestments big picture oil supply capability is being curtailed...which will ultimately bring oil supply/demand back into better balance and hence give some proper fundamental support to the oil price. BP is a survivor and so far has undertaken the dividend maintenance dance in textbook fashion. In a year’s time life could look quite different and the enthusiasm levels for commodity facing stocks far higher from professional fund managers. And BP shareholders will not just be talking about the maintenance of their dividend income but also capital growth with a BP share price deep into the £4s. Still time to add to the pension fund holding in BP shares.
Chris Bailey is the founder & editor of www.financialorbit.com and a speaker at www.goldandbears.com UK Investor Magazine — 10 — November 2015
company of the month
Prime People (PRP) Still a prime investment opportunity?
By Steve Moore
H
aving been 110p before the company’s recent announcement of results for the six months ended 30th September 2015, shares in Prime People plc (PRP) currently trade at 135p. Is this still though a prime investment opportunity? Value in shares in this company which offers both permanent and contract specialist recruitment consultancy for large and medium sized organisations through brands including Macdonald & Co and Prime was noted on our ‘Nifty Fifty’ offering last year - with the shares added to our ‘Penny Shares’ portfolio at a 90p offer price as we noted a returning of cash which showed a regard for shareholders which precious few other AIM-listed companies demonstrate. The shares gradually eased ahead to reach 135p in August this year, before falling back to sit at 110p before the recent interim results announcement. The results showed a pre-tax profit of £1.06 million on net fee income more than 24% higher than in the corresponding 2014 period, at £6.21 million, generating earnings per share of 6.97p, up from 4.17p. After particularly £0.86 million of dividends to shareholders, cash (net) was increased by £28k to £1.04 million and the company noted “we believe we are well positioned to capitalise on both current and future growth opportunities”. This confidence was reflected with the interim and special dividends of last year (respectively 1.75p and 4p per share) to be repeated and the dividend yield in correlation with a prospective single digits price/earnings multiple suggests continued investment merit here. However, the company has noted that “recruitment activity is largely driven by economic cycles and the levels of business confidence” and particularly that “a decline from current levels of activity in the property market generally could have a material adverse effect on profitability and cash flows of the business”. This is thus something to stay alert to, though there is now some decent geographic diversity here – with growing international (particularly Asian)
operations. Liquidity and the spread are something of a pain with this stock, but we continue to consider there decent further upside potential from here and thus, despite the gains thus far, our Nifty Fifty stance is that, the shares are at worst a hold but probably ones to tuck away for the long term. Steve Moore co-edits the Nifty Fifty website with Tom Winnifrith
Executive Chairman Robert Macdonald has held senior positions within the recruitment industry since 1973 and in 1994 established Macdonald & Company as a specialist property recruitment consultancy in London. Lead by himself and Peter Moore, the company completed a reverse takeover of Prime People plc in January 2006. Managing Director Peter Moore qualified as a Charted Surveyor in 1994 before joining Macdonald & Company and being appointed Managing Director in 1996. Finance Director Donka Zaneva-Todorinski has just been appointed to the role following the retirement from the position of Chris Heayberd, who remains with the company in a non-executive director role. Zaneva-Todorinski joined Macdonald & Company in 2011 as a Management Accountant before being promoted to Financial Controller and is a member of the Association of Chartered Certified Accountants.
UK Investor Magazine — 11 — November 2015
Be An Ethical Investor - and Make Some Good Clean Money By Malcolm Stacey
H
ello Share Pingers. There aren’t many publications which allow you write what you wish. Especially when it goes against the principals of the magazine’s big cheese. In fact, I can’t think of one newspaper or mag that allows that sort of thing. Can you imagine the New Statesman allowing an puff for the Tory party. Any road up, Tom Winnifrith is against ethical investing. Yet, not only did he allow this article on the subject, but he actually suggested it. So let’s begin. The first thing to say is that ethical investing is very hard to argue against it. Because right is right and wrong is wrong - and that’s all there is to it. I mean, do we really want to make dough out of the suffering, inconvenience and unhappiness of others? Would we not be far happier supporting firms that actually help humankind and the planet? Companies that we trust to pay their taxes, treat their employees fairly and recycle their waste. So that’s an end to it. I might as well pack away my laptop and go and watch a western. Except that ethics in the fascinating world of share-shifting is a much more complex story than it first seems. And we all know that’s a common feature of Shareland: nothing is ever as simple as it seems. From the personal point of view, I never invest in tobacco firms, companies which test on animals, arms makers and wooden furniture makers who attack rain forests or bookmakers I widen this field to companies which make cars, because I hate air pollution. And because I am an animal-lover and veggie, I will not buy stocks in butchery, firms which vivisect, leather processors and gun-makers. But I have invested in nuclear fuel and most of my current shares are in the oil sector. Many ethical investors regard oil as a really bad thing and only support renewable energy outfits. It’s all a matter of choice, then? Well no, ethics are fixed. And you cannot occupy the moral high ground if you buy shares in companies which are not good companies, in the sense of moral companies. Simply, you cannot allow yourself to get rich at the expense of other people’s misery.
If you are uncomfortable about investing in a company - even if the analysts tell you it is a share which can’t fail - you must not do it. Sorry, but you just can’t. Not and hold your head up. And if you feel that such a stubborn approach will cost you dearly, let me reassure you. After a shaky start, ethical options are now outperforming. The Footsie 4 Good Uk index, which tracks companies with uplifting social credentials, has just beaten the Footsie All share index returning 48% compared with 43%. It’s not hard to guess why. Ethical funds do not buy mining and oil shares. And we all know which have been the worst performing sectors this year - the miners and oilers. But you need to be a bit careful. One ethical fund was found to have invested in shale gas. Also, you would perhaps draw the line at investing in Volkswagen because of recent cheating which is not, of course ethical. You might also want to be wary of firms which have over enthusiastic tax avoidance policies. But again, don’t worry about losing out because of your high morals. Experts believe that firms which are seen to do the right thing - paying decent wages - for example, are likely to be more patronised than firms which appear to be utterly selfish and profit-driven. Now let’s continue the argument in the Punter’s Return
UK Investor Magazine — 12 — November 2015
See you in Court, Bitchez! By Tom Winnifrith
I
cannot remember exactly when See you in Court, Bitchez became my catchphrase. I suspect it was during the time that Sefton Resources (SER) tried to sue me for libel. It has now become a standard response whenever I get a lawyer’s letter which seems to be about once every two months. The first lawyer’s letter I got as a journalist was in 1994. The company was Proteus an early biotech fraud on the AIM casino. I was at the Investor’s Chronicle and goaded and goaded until the IC and I got a letter from a sleepy little law form in Stratford upon Avon. The IC folded and agreed that I would not cover Proteus again. So I took my dossier to Clive Wolman, a heroic individual then editing the Financial Mail on Sunday. Together with one of his staff writers we worked it up into a two page expose. As Clive played with the article tapping away on his PC he asked me how many writs I’d had. Truthfully I said none. Clive said “I have six outstanding against me personally right now…do you mind if I amend this sentence”. Clive twisted the knife and we went on. Proteus shares collapsed after that article and I once again had free rein at the IC. I got to work directly with Clive at UK-iNvest – a fraudulent dotcom – a few years later and it was a pleasure. I am not sure what he is doing now but he was a real journalist a role model for us all. There are some who say that “See you in Court bitchez” is not a terribly professional way to reply to esteemed firms such as Schillings, Memery Chrystal and of course Pinsent
Masons. I can see the point that is being made but my problem is that I view such lawyers with complete contempt. They charge vast amounts to represent utter crooks, knowing that they are working for complete crooks to gag those who are exposing the truth. Above all the crooks pay those vast fees with OPM, Other People’s Money. That is to say shareholders money. I really do not know how the lawyers acing in this way sleep at night. In many ways I regard them as even more loathsome than the fraudsters they represent. But my riposte also always comes with a rider. There is a reminder that as part of the libel laws of this country (which suck) the defendant has a right to disclosure of full information. Sam Antar, the former fraudster turned fraudbuster, correctly identifies disclosure as the process the fraudster has most to fear. In accusing Rob Terry and Quindell of fraud I knew that I was on safe ground as I could already prove it from documents in the public domain. But what I also knew – and Terry knew – was that there were certain documents I knew existed which would expose even greater fraud and that they would emerge as part of any disclosure process. When Sam Antar was committing fraud he never threatened his critics with a libel case. He regards that as a classic mistake. Not only does it give the allegations made by your critic the oxygen of publicity but if you threaten but do not sue (blinkx, Globo, Range Resources, Daniel Stewart, The LSE Asylum, Quindell and before that Firecrest, Proteus, 3DM and many others) you are more or less admitting that you are
UK Investor Magazine — 13 — November 2015
guilty as charged. If you actually sue then for the fraudster – as Jim Ellerton of Sefton found to his cost – it invariably ends in tears. Do I like receiving lawyer’s letters? The honest answer is sometimes. Just occasionally you receive one that is so badly put together and has such a dismal case that myself and Pizza Hardman Darren Atwater just laugh, publish the letter and goad whichever crook sent it that little bit more. As a bonus that invariably brings out some whistleblower who provides some more filth to chuck at the crook. Normally I am less delighted when a letter arrives. You have to take it seriously. If we are threatened with an injunction – as has happened twice – we get the foxy legal team in and use the cash our supporters have donated to the fighting fund – to mount a professional defence. Injunctions are a) quick to process and b) fiendishly complex. So far we have won 2 from 2 (Aiden Earley and Julian Hamilton Barns) and my hope is that our track record will deter others from seeking an injunction. They are dam hard to get and horribly expensive when you lose. If it is a libel case we fight ourselves. We have many legal friends who will give free advice. And a libel case will take anything up to two years before it gets to Court. One has plenty of time to reply to papers and that time can be used to dig up more and more dirt on the enemy. The reality is that we are only ever going to be in a libel fight we know we can win and folks who tell one lie or commit one fraud invariably have told many lies and committed many frauds, it is just a matter of digging away. With Jimmyliar Ellerton after nine months we have not even got to the stage of getting disclosure on the documents we needed when we discovered the nuclear grenade which sank him for good, forcing his resignation from Sefton – that is to say the Gary Dillabaugh papers. Anyone dumb enough to sue me for libel should know that I will dig and dig and continue writing about them as the Courts wend
their way through months of inaction. And that digging will bring them down. I am fully aware that some folks do not like the way we go after companies that are in our view frauds or just over-puffed promotes. The use of our own videos (I just loved offering a victory glass of champagne to lawyers at Pinsent Masons after the Sefton win), music videos, cartoons, caption contests, podcasts and bad language does not appeal to everyone. Some would just like sober analysis on its own. But in a long campaign you need as a writer to have some fun to keep your spirits up and if we attract a wider audience that all helps. The bottom line is that you may not like our style but since no other publication in the UK really seems to give a monkey’s wotsit about exposing fraud it is our way or the highway. Last month we were not the only publication to get hold of the devastating QCM report e x p o s i n g Globo as a fraud. The FT which is far more able to take on a legal challenge than we are had it but it just sat on it. We published and forced the suspension of the shares and within three days the company to admit that it was a fraud. Once again the FT and the mainstream press just did not have the balls. As it happens we had already heard from Globo’s lawyers some 17 months previously. So we knew they were litigious. But having verified the QCM report we went for it. Unlike the silly girls blouses at the FT we have cojones. Bloody hell, I am swearing again. A pompous email from Evil Knievil will no doubt be the result. A shareprophets reader will email me and accuse me of being a foul mouthed drunk and say that he is cancelling his (free) subscription. As I noted, not everyone likes our style. But the folks who are most offended and really hate what we do are the fraudsters. And that is, surely, not a bad thing.
UK Investor Magazine — 14 — November 2015
Seven stocks that could be suspended and where you could lose 100% By Nigel Somerville
O
ne really could just take a pin to the twentythree remaining ShareProphets AIM-China Filthy Forty stocks which are still trading. Nobody believes a word they say, hardly surprising, given the number of Nomad resignations - eleven so far this year – and not one explanation of why. It is all being swept under the carpet. But right now no Nomad will take on a China client which has lost its previous Nomad. What follows is a month on death row and then expulsion. Game over. Cases such as Naibu (NBU) which reported stacks of net cash until the debts emerged, Camkids (CAMK) which tried to explain away its cash-pile by giving away to distributors and Geong (GNG) with its revenue recognition have all played a part. I could go on. The market is not all AIM-China plays so I have chosen four of our Filthy Forty and three others whose financial positions look precarious. Jiasen ( JSI) slashed its interim dividend and scrapped the dividend policy stated in its admission document of just 15 months ago on the grounds that the yield was too high! Yet it claims to be drowning in cash, cash generative and profitable – but is maintaining bank borrowings and paying net interest. Then there is the purchase of 47 hectares of land so as to build a 12 hectare site: the company plans to spend twice its net cash on buying land it does not need to expand a factory which appears to be running at way under capacity. So many Red Flags there, it seems only a matter of time before either Jiasen’s Broker or Nomad resigns. JQW ( JQW) has a market capitalisation of £12.3 million yet interims to June showed a cash-pile of £46 million. It trades on a PE of less than one and generated cash of £6.5 million during H1 yet it cancelled the interim dividend. Surely a share buy-back is the correct move? The company has apparently run into trouble with the Chinese authorities over advertising and pyramid selling regulations and had its operations (web-hosting) suspended. One wonders how much of the company’s cash will be explained away from that, or how much of the business will be left if all these fee-paying customers ask for a refund and take their business elsewhere. Assuming they were all there in the first place, like the cash. Auhua (ACE) is apparently expanding while the Chinese economy slows. H1 receivables were up 60% since FY14, reaching 177% of H1 turnover. It claims to be profitable but is bleeding cash, and
raised £1.7 million at a near 70% discount in a placing in June. Its chairman has just walked with little explanation and its Nomad has recently quit two other Chinese clients in the last few months. Accident waiting to happen? Full year (to Mar 2015) results from MoneySwap (SWAP) showed a loss of $3.2 million, cashburn of $2.4 million, net current liabilities of $3 million and retained losses of $26 million – not clever against a market capitalisation of £9 million (source: ADVFN). There was an audit Emphasis of Matter with regard to sign-off of the company as a going concern despite raising £2.3 million in April. In the current climate, will a placing be possible or will MoneySwap just run out of cash? A candidate for “suspension pending clarification” then? Away from China, Rurelec (RUR) has had all manner of problems and looks to be teetering on the edge of the cliff. The company needs cash quickly and a possible £600,000 short-term package was announced amid suspicious shareprice action. Some may wish to take their chance from the 150% rise to head for the exit. It is good to see the new management making a fight of it but the odds of remaining solvent do not look good. A 54% stock overhang created by Rurelec’s major shareholder calling in administrators makes a placing unlikely to be achievable. £600,000 – if it comes off – will keep the lights on, but it won’t solve Rurelec’s cash crisis. Potential for suspension pending clarification at any moment. Golden Saint Resources (GSR) resorted to a crowd-funded death spiral to try to raise enough cash to keep its lights on: out of cash, out of friends and running out of time. There looks to be no chance that the funding round will come off rather than Nomad Beaumont Cornish deciding shortly before lunch one day that enough is enough. Finally – not on AIM, but worthy of mention – Kenmare (KMR) which needs another $20 million from its lenders but also needs them to waive conditions or it is lights out Ibiza. The lenders are faced with a Hobson’s choice. Meanwhile potential suitor Iluka has gone quiet. If it were serious about buying Kenmare it would surely just make an offer to the debt-holders. What do you reckon: 50p in the £? 60p in the £? The creditors would bite Iluka’s hand off. Thus Kenmare, drowning in debt as it is, could see its creditors pull the plug and leave the shareholders with nothing. Alternatively, Kenmare could just go bust. Take your pick.
UK Investor Magazine — 15 — November 2015
UK INVESTOR SHOW 2016 Sponsored by:
UK INVESTOR SHOW 2016 OW 2016 UK INVESTOR SHOW “Main stage presentations were great… particularly Mark Slater, Luke Johnson, panel discussions and of course the inimitable Tom Winnifrith." - PS
"As a long term investor, I found the shorting session fascinating and frightening." - DM
UK INVESTOR SHOW 2016 UKINVE INVESTOR SHOW 2016 OW UK2016 INVESTORS SHOW 2016 UK IN UKTickets INVESTOR SHOW 2016 half price until 7 June Book now Meet and speak to CEOs and board members from AIM & LSE companies 3016April April2016 2016
Westminster, London
ukinvestorshow.com UK Investor Magazine — 16 — November 2015
What hope for AIM’s offshore Ireland oil explorers? By Ben Turney
O
nce fated as the last frontier province in Western Europe, oil exploration off the coasts of Ireland has stalled.
The Saudi-led global price war has laid low the share prices of many oil & gas companies, but the AIM-listed Irish exploration plays have suffered more than most. Companies with operations in the Celtic Sea to the south of the country and the Atlantic Margin to the west have been brutally punished. After a recent string of negative announcements what hope now is there for these battered businesses? The history of Irish offshore oil exploration has been characterised by a succession of false dawns. Ever since Exxon Mobil discovered the Barryroe field in the Celtic Sea in 1974 and decided it was not commercial, there have been a number of failed attempts to deliver a black gold bonanza to the Irish Economy. Providence Resources (PVR) was just the latest company to stir up excitement that Ireland was on the crest of a transformational discovery. Revisiting Barryroe, Providence drilled an appraisal well in March 2012 and revised Exxon Mobil’s previous judgement. According to Providence, advances in technology and the rising oil price meant that it estimated Barryroe contained 300 million barrels of recoverable oil from two tested reservoirs. The market responded ecstatically causing a surge in Providence’s share price and reigniting investor interest in companies active in the region. If what Providence claimed it had discovered was realisable, then Barryroe was a large field even when compared to discoveries in the North Sea Unfortunately, this wild enthusiasm has not since been matched by operational delivery. Three and a half years later and we are yet to see a single barrel of commercial oil delivered from Barryroe. The project failed to move forward and Providence has been unable to find the commercial partner it needs to develop the field. From a peak of 695p in September 2012, Providence’s share price now trades at a measly 21p. The dreams of Irish oil have turned to dust, but what has been behind this failure? The easiest culprit to blame for the disappointment has been the declining oil price. However, this alone isn’t a satisfactory explanation.
When Providence first announced its revised view of Barryroe’s commercial potential the oil industry was in the grips of an investment boom. The price of oil’s two major benchmarks, Brent and WTI, consistently traded well north of $100/ barrel. Investor appetite for stocks in this sector seemed insatiable. This was a golden period to open up a new producing oil province and it has been something of a mystery why Providence was unable to deliver its much anticipated farm-in partner. Perhaps one of the problems with Barryroe was that the industry is sceptical about the claims Providence has made. After all the company and its partner, AIM-listed Landsdowne Oil & Gas (LOGP), only drilled one additional appraisal well in the licence area. Although this marked the sixth well drilled in the history of the Barryroe license area, it must by now be clear that the major players in the oil market need to see more evidence before committing significant capital to development of the field. In defence of its flagship project, Providence has consistently pointed to the fact that all six wells drilled historically at Barryroe have successfully logged hydrocarbons and seen oil flow to the surface. The company believes that leaps forward in 3D Seismic technology have made modelling of field potential a much more reliable pursuit, giving it confidence in its projections. However, the fact remains this has not been enough to convince anyone with sufficient financial muscle and operational experience to take the plunge and commit to Barryroe. Now that we are in the grips of a global price war in the oil market, the future for Barryroe and other exploration efforts off the coast of Ireland looks increasingly bleak. Any hope that the Atlantic Margin licenses to the west of the country might offer cause for hope took a severe knock when Europa Oil & Gas (EOG) announced on 22 September that its farm-in partner for the Frontier Exploration License (FEL) 3/13 in the Porcupine Basin, Kosmos Energy, was pulling out of the deal. Although Europa has since announced a revised Competent Persons Report,
UK Investor Magazine — 17 — November 2015
UK Investor Magazine — 18 — November 2015
which attributes a $7billion un-risked NPV10 to this license area, the market knows this is little more than hot air unless the company can find a new partner to share the exploration risk with. The story doesn’t get much better for Providence in this region either. The company also has exposure to various FEL licenses, including FELs 2/04 and 4/08, known as Spanish Point. The good news for Providence is that it still has a major partner to explore these licences areas with; the project operator Capricorn Ireland, which is a wholly owned subsidiary of Cairn Energy. The bad news is that Providence has recently announced that the planned appraisal well of the gas condensate discovery at Spanish Point, discovered in 1981, is now delayed until 2017. In a testament to the tough operating environment it finds itself in, Providence announced at the end of October that it is going to try to find an additional farm-out partner for Spanish Point. The company hopes to divest a further 32% of the project, leaving it with a 26% stake. Although Spanish Point is a drill ready prospect, this doesn’t mean much if the project participants cannot afford to survive until the drill bit starts turning and then pay for their proportions of the costs. But before shareholders in the Irish oil explorers become too despondent, there are some signs of life in the sector. September’s Atlantic Margin Licensing Round attracted 43 applications. According to Minster of State for Natural Resources, Joe McHugh this was “by far the largest number of applications received in any licensing round held in the Irish offshore”. The last licensing round, held in 2011, only received 15 applications. The evaluation process for the latest round has now commenced, with awards expected over the coming months. Whether this level of industry interest in the region will be enough for the AIM-listed companies already operational there remains to be seen. The crucial factor now will be their ability to survive the rough patch. Unless there is a significant rally in the price of oil (which seems unlikely this year, going into next), this is not a market to raise funds in. Unless companies can survive on their existing cash balances their shareholders could find themselves in serious trouble. If you are interested in taking a gamble on a recovery in the Irish offshore oil exploration sector I present below the latest headline financial metrics for four of the AIM-listed companies active in this area. Providence Resources is the largest, but looks the most vulnerable to a placement. Antrim Energy (AEY) looks the most secure, but its board of directors hardly has a reputation for tearing up trees. Europa Oil & Gas has diversified interests away from its Irish licenses, which offer a degree of protection. Landsdowne Oil & Gas
is the purest play and has the smallest market cap. If there is a recovery in the price of oil and renewed investor interest stimulated by the 2015 licensing round, this company’s share price could outperform. Or crash. Take your pick. PROVIDENCE RESOURCES Half Yearly Report to 30 June Multiple licences at difference stages of development across the Celtic Sea Basin, the Kish Bank Basin, the Northern Porcupine Basin, the Southern Porcupine Basin, the Goban Spur Basin and the St George’s Basin. Total Current Assets: €11.6million Total Current Liabilities: €17.7million Net Current Assets: -€6.1million Operational cash burn over 6 months: €13,512million (including €11,194million change in trade and other payables and offset against the €25,754million the company raised in March) Share Price: 21p Shares in Issue: 140,080,000 Market Cap: £29.4million LANSDOWNE OIL & GAS (LOGP) Involvement in multiple licenses off southeast Ireland, including Midleton/East Kinsale, Rosscarbery, Amergin, Helvick, Barryroe and Barryroe North. Interim report to 30 June 2015. Current Assets: £743,000 Current Liabilities: £2,079,000 Net Current Assets: £1,336,000 Operational cash burn over 6 months: c.£408,000 Share Price: 1.88p Shares in Issue: 161,740,000 Market Cap: £3.04million EUROPA OIL & GAS (EOG) Final Results to 31 July Soon to be 100% interests in FEL 2/13 & FEL 3/13 in the Porcupine Basin, with the departure of Kosmos Energy from Irish Exploration Total Current Assets: £3,538,000 Total Current Liabilities: £1,239,000 Net Current Assets: £2,299,000 Operational cash burn over 6 months :£1,784,000 Share Price: 3.62p Shares in issue: 244,890,000 Market Cap: £8.86million ANTRIM ENERGY (AEY) 25% in the Skellig Block, south west of Ireland. Interim financial report for Q2, to 30 June Cash: $13,537million Other Current Assets: $805,000 Total Liabilities: $3.919,000 Net Current Assets $11.2million Operational cash burn over 6 months: $388,000 Share Price: 1.55p Shares in issue: 184,730,000 Market Cap: £2.86million
UK Investor Magazine — 19 — November 2015
Zak Mir’s three shares to buy for November By Zak Mir
Audioboom (BOOM): The Base Is Mostly likely In Place udioboom may be a company of which anyone over the age of 40 simply does not get, but the reality of this former Bulletin Board Hero is that given time the sound platform group will most likely get to its destination of being the Youtube of audio. The irony is that courtesy of dynamic CEO Rob Proctor’s dealmaking the company will eventually get to the promised land of a robust revenues based business model. By this I am referring to the expansion of the group not only in the U.S. but also to the emerging markets of India and China.
be more than sufficient to get the registered user numbers up to make Audioboom the growth story it gave the impression of being when it came to AIM in May last year. The problem since then has actually been managing expectations, with the share price rising from 4p to 18p in the summer of 2014. This has led to disgruntled bulls long from higher up, something which has to affect sentiment towards the company. Nevertheless, from a technical perspective now it would appear that the summer of 2015 has done the work of base building which needed to be done in terms of testing for support at the initial sub 4p post IPO lows, and as October ended the bargain hunters looked to be on their way.
Putting it bluntly, just being in these geographies, and being a player of note should
For November much will depend on whether the stock can press home its advantage above
A
UK Investor Magazine — 20 — November 2015
the 50 day moving average now at 4.28p. If this is the case on a sustained basis one would be looking to the 2015 resistance zone at 10p as a year end target, something that most fans of this company would probably settle for at this stage. Only the most cautious traders may wish to wait on a weekly close back above the 200 day moving average at 6.61p as a momentum buy signal before pressing the buy button.
Kibo Mining (KIBO): Above 4.5p Could Lead To 9p
W
e live in exciting times as far as the mining sector is concerned currently, with the situation at Glencore (GLEN) at one stage appearing to make it the Lehman Brothers of its asset class. Indeed, it will be interesting to see how it
Get your free copy of Zak Mir’s new ebook, out today, Real Bulletin Board Heroes: The Ten Stocks to Buy for Autumn 2015 by clicking here.
UK Investor Magazine — 21 — November 2015
manages to finesse the $30bn debt pile it has by doing anything more than cutting production. But the bigger story for bulls of mining stocks apart from the near capitulation of a FTSE 100 company is the way that the junior members of this space look to have staged a serious recovery since the China scare of August – in some cases even before this. My personal idea on this is that junior miners may be pointing the way up to lasting recovery for the mining sector in the way that they did on the downside in 2009 and 2010 ahead of the collapse in precious metals. True, there is still a long way to go, and the more hawkish stance from the Federal Reserve regarding interesting rates possibly going up in December could nip the recovery in the bud, but it would appear that so far this bounce in the likes of Kibo Mining following on here, has been surprisingly robust. What can be seen on the daily chart spanning the past six months is progress within a rising trend channel from the spring, with the floor of the channel currently running at 4.5p.
Nominally while there is no end of week close back below this level. For the near term while there are decent moves to hold the 200 day moving average at 5.08p one would be reasonably confident of progress towards the top of the rising 2015 price channel as high as 9p over the next 2-3 months. Those who wish to see further signs of recovery here would use a clearance of 6p zone resistance from October as their cue to go long – especially as there would still be plenty of notional upside left after that. Utilitywise (UTW): 300p Target After Latest Client Wins
G
iven that these three stocks to regard as bullish contenders for November are primarily technically based rather than fundamentally, even though there is an element of both in the mix, it may be surprising to see Utilitywise included given the way that at least in terms of first impressions we are not looking at a clearly positive chart. This is because the stock is still trading in the aftermath of a topping out both at the beginning of the year and in the early summer through the 270p zone. Indeed, the big technical signal of the summer was a dead cross sell signal between the 50 day and 200 day moving averages, something which was lagging on the downside break, but still dragged the stock to sub 150p before a recovery began in September. The position now is that the stock is still consolidating the basing of the early autumn, with this point being underlined by the recovery of the 50 day moving average now at 181p. The basic message here is therefore that provided there is no end of day close back below the 50 day line one would be looking for an intermediate rally with the 200 day moving average at 218p as the destination by the end of November. Overall though, on a two – three months timeframe perspective it seems possible that the stock could head as high as the top of a rising trend channel in place on the daily chart from January. It has its resistance line projection pointing as high as 300p, something which appears a long way away currently, but which could be achieved given the latest news of achieving 150 clients for its Energy Savings Opportunity Scheme, compliance service. They include Which? and Zoopla (ZPLA). Once again, those who may be cautious that this is a stock which is still in a bear market rally, waiting on a weekly close above the 200 day moving average might be the best way forward, even though this gives away the initial potential upside.
UK Investor Magazine — 22 — November 2015
ceo interview
John Gunn
By Zak Mir Zak Mir: Inspirit Energy: A blast from the past. But is it a company for the future? John Gunn: Yes, of course. I think there’s no question about it. If you look today at the industry overall the sense is that technology will move towards mCHP (micro Combined Heat and Power). If you look back 100 years ago you had steam boilers and 100 years ago people were operating with log fires. There’s no question about it doing that today. You have to move on to the next generation of technology, and that is perceived to be micro generation.
Zak
have come in and they’ve backed us and they’ve remained very loyal to the company. Today what we really need to do is improve our profile, make people aware of a product that the industry is very well-aware of. There’s no doubt about that. We certainly have a presence in the industry and a lot of people looking at us with some sort of eagerness to see when the product will come to market. From that point of view, with the technology risk out of the way, it really just comes down to Inspirit as a management team being able Mir to deliver the commercial success which will reward investors.
ZM: The big positives with small companies, and the AIM market is that you can have very exciting ideas and very enthusiastic private investors. But at the same time the issue here is that over the past 20 years the overall return on AIM has been close to zero as the failures have brought down the average. As a long term investment would you say Inspirit Energy is back in play? Is the waiting game over now that the dirty work has been done?
ZM: There are a number of points to look at here. I am looking at the chart of Inspirit Energy. There was clearly plenty of enthusiasm in the summer of 2013 as the shares went up from 1p to 3.5p. The situation now is that private investors who are new to you company and those there from the start may be asking why it has taken so long to get to this point? We are talking boilers here, not rocket science. What is the trigger for getting involved at this stage?
JG: Well I like the term you use ‘has the dirty work been done?’ I think the hard work has been done. I think today Inspirit represents an investment proposition which has been derisked substantially. You can’t deny the fact that a lot of technology companies start out being over enthusiastic about their products to a certain extent, but more so about their anticipation of the market penetration and the size of the market and so on and so forth. Inspirit has always had a low profile. We focus very much on engineering and delivering a product which is fit for purpose.
JG: Well I think Inspirit today has produced its first production appliance. Technology goes through various phases until it reaches a phase where it can now enter into mass manufacturing phase. Now, I’m not saying today that we’re going to go out and mass manufacture this appliance immediately. No, there are still some milestones that need to be achieved, and the first of those milestones is the product will go off for certification, which of course is the standard that all domestic and all commercial boilers have to meet for installation into environments. The appliance will go off and it will meet those standards because it’s been built to those standards. The next phase obviously then is to obviously deliver on our sales and marketing strategy which we have and our sales and marketing strategy will first see us go into commercial installations, high street shops, restaurant chains, nursing homes,
Today we have a product which is fit for purpose which is soon to be launched to the market and the development of that appliance has taken a considerable amount of energy on our part, but also a considerable amount of investment and that investment has been supported by those investors you talk about, private investors who
UK Investor Magazine — 23 — November 2015
breweries, sports centres, medical facilities, and thereafter that will continue to develop to enter into the domestic market as well and again it’s not limited to the United Kingdom either. Our product will fit into any environment which has a gas grid network. So it’s certainly the turning point in our business because we now have a product ready to go into that next phase, and the first part of that will be trialling our unit within a number of institutions. It will be a forced trial. It will be a real trial. We will be replacing an existing boiler with our mCHP technology and as far as our sales and marketing go there are a number of drivers. mCHP remains one of the few feeding John tariffs that has remained unchanged within recent times. Therefore from that point of view there are still a lot of drivers to make it an affordable product for the consumer, but also a lot of incentives for people to be involved from a sales and marketing point of view similar to what we saw with solar. So there are a lot of drivers to push our technology out there, and as we all know, simple economics, the more products you produce, the lower the price will come and the more affordable and available it will become to the wider audience of people who are interested in adopting this technology, and I say this with an air of confidence. No doubt about it, at a time in the future, whether it’s the next three years, the next five years, but certainly the next decade I think existing boiler technology will be replaced with a combination of micro CHP and fuel cells, or a combination of both and we will certainly be a part of that.
and three kilowatts of electrical it meets the thermal demand target market. That will be anything from the facilities I mentioned before, and at the same time it will also meet the needs of the medium to large size homes as well that have that thermal demand. Of course all these institutions I mentioned all have the need for the electricity. So what we’re producing here is not only a highly efficient product. We’re reducing significantly the carbon footprint end user, because we are producing electricity at the point of consumption and therefore you’re reducing significantly the amount of carbon burn as a result of actually creating micro CHP. This is Gunn an industry wide drive that we’re seeing towards clean technology, and in particular micro generation. I could bore you a little bit by going into the greater detail, but obviously energy produced at a coal fired power station, a lot of that energy is lost in transmission, therefore you’re increasing the amount of carbon you’re burning, the amount of electricity you’re producing. When you’re producing electricity at the point of consumption there is no transmission loss, so it’s significantly more efficient and has a significantly increased reduction in the amount of carbon used to make that power. So that’s what’s important about our product today. That is a driver as well in terms of helping us achieve the sales and the expectations of sales that we set for ourselves.
ZM: You touched upon the uses and distribution of where this could go, which is clearly worldwide and by definition represents an opportunity. But for people who are not experts on boilers, how much of a game changer is this? Is this the Tesla, or the iPhone of its area? How different is it, and how much of a lead does it have over its rivals?
JG: No, it’s a disruptive technology. It’s a replacement technology. If we look back in the industry and we look at the phone market, we look back ten years, Nokia, Motorola, Sony to a certain degree and you now look and say well who is dominating the market? It’s Samsung. It’s iPhone. That’s because they’ve come in with a disruptive technology that actually does the job better with add-ons. This is what our boiler is about. It does the job a lot better, more efficiently and it’s got add-ons. It’s got electricity production. There are other efficiencies in it as well. You can monitor this boiler remotely. You can monitor it off site. You can use the electricity more efficiently to turn it on during periods where electricity prices increase. You can turn it on if your electricity consumption is reaching certain peaks…
JG: There are competing products in the market. We are aware of those technologies, and where we fit with the marketplace is. Our boiler meets both the thermal requirements of where you would install it and it also makes a significant contribution to the electrical needs of that installation as well. There’s no point in having too much electricity with no thermal. It doesn’t work. You need to have the thermal and therefore our boiler producing a heat power ratio of five to one. So 15 kilowatts of thermal
ZM: Is this a disruptive technology or just pure innovation?
UK Investor Magazine — 24 — November 2015
ZM: Is this effectively a smart boiler for its space, in the way that smart phones have revolutionized the telecoms world? JG: Well effectively if you had 10,000 of these and you can control them you’re creating a mini power station. Imagine the impact of that? You could through technology turn the boiler on, store the thermal, because you can store thermal and you can store water in a tank and use it to have your bath in the evening and you can create it in the morning when there’s more demand for electricity. It’s having that control on your energy but it is instant energy produced at the point of consumption. So there’s no doubt about it, it is the future, but there are a lot of other factors that need to fall into place to see that the technology is adopted on that scale. Finally, the market cap of around £4m. How can one explain that in terms of the opportunity that it is potentially? How do you explain where it is now, and can you give an idea of where it could be in the future? As a PLC and as Inspirit Energy PLC and I look obviously at the sum cost, the sum cost today even as a PLC is somewhere in the region of what the market cap is, but obviously if you look at the history of this product - and I’ve been involved now since about 2004 - the sum cost in this business is a multiple of what the market
cap is today. That shouldn’t necessarily be what the value of the business is, because as we’ve seen time and time again in our industry you can spend a lot of money and achieve very little. Our competitors have gone out of there and some of them have spent large sums of money to try and produce competitive products. Today we’re still here and have a product that produces 15 kilowatts of thermal, but more importantly it produces 3 kilowatts of electricity and there’s not another product in the market that has that combination today. So I really do feel that it’s a product that meets the need of the market. Honda has an engine that produces a high quantity of energy but very low quantity of thermal, so you’re going to have to probably tie an additional thermal element to it In addition, we’re looking today at battery technology - lithium batteries. In the future you will have a power pack as well. What’s going to charge that? Sure you can charge it from the grid, but why wouldn’t you charge it from a boiler that is meeting your thermal needs at the same time? So you’re not going to export electricity into the grid. You’re going to keep it. You’re going to consume it and you’re going to store it and use it at a later point as well if you need it, because it’s more efficient consuming your own electricity than it is selling it. If you’re selling it you’re losing margin. So this is the way the consumer is going to be thinking going forward.
Hot Stock
ROCKETS SStoc toc ks k s R e a dy to tak e o ff hotstockrockets.com UK Investor Magazine — 25 — November 2015
Four shares to sell for November By Tom Winnifrith
T
his monthly exercise is getting harder for two reasons. The first is that, whilst I regard UK Equities as fundamentally overvalued, I sense that talk of perma-cheap money in the West, China cutting base rates etc. could well see equity markets push higher short term. Certainly the upward moves in some the worthless bottom end of AIM companies that will never ever generate a cent of free cashflow indicates that the bulls may well get their Santa rally after all. I remain bearish and would rather miss out on one more rally but not run the risk of being over-exposed in a big sell off which I regard as only a matter of time. Secondly most of the stocks that I have marker down to collapse have dome the decent thing and collapsed. Certainly the number of liquid shorting opportunities on the AIM Casino is now greatly reduced thanks to companies such as Globo finally doing the decent thing and going bust. And thus in finding three stocks to sell I must admit that my task is a lot harder than it was a few months ago. And so sorry if this sounds a bit repetitious but I must return to some old faves.
First up is LGO Energy (LGO) at 0.4p-0.45p. This has appeared in this column at least once before and I have been vindicated. But as my pal Evil Knievil says “the best time to kick a man is when he is down”. LGO is in breach of its bank
covenants. It has had major operational screwups and the oil price is low. Above all its assets in Trinidad are just pretty poor, wells come on stream and immediately go into a massive decline in output. I reckon LGO will be out of cash by Christmas as well as being in breach of covenants on its $11 million of debt. The company had appointed two US firms to look at refinancing options. Heck why waste its cash for a mere £10,000 my morbidly obese three legged cat Oakley can tell LGO that it needs to do a placing for at least £6 million to give comfort to the bank and to keep the PLC lights on. The market capitalization is now just £13 million and so that fund raise is going to be problematical to say the least. Might Big Dave Lenigas help his old pal Neil Ritson and get away a £6 million placing at 0.2p? That would imply 50% dilution. Frankly it may not be possible to both keep the bank on side and to refinance in which case the target price is 0p. Either way LGO remains a slam dunk sell.
At the risk of sounding dull saying that small Chinese stocks on AIM are a sell has been like shooting fish in a barrel. I don’t care what profits they purport to make or cash they claim to own because time and time again they have been shown to be slam dunk frauds. Of the 40 China stocks listed on AIM on June 1 2014 or which have listed since, 15 have already been booted off the casino and two more are on death row. In most cases the Nomad has just quit when the fraud became just two obvious. And so since it is late at night and I am struggling
UK Investor Magazine — 26 — November 2015
on a deadline my final three are all China AIM plays. JQW and Jiasen ( JSI) are slam dunk frauds and at 5.875p in both cases they are both clear sells with a target price of 0p or suspension following the resignation of Nomad. Both have been covered extensively on ShareProphets and how their Nomads have NOT resigned just defies belief Aquatic Foods (AFG) is a relatively new (February 2015) AIM Casino entrant. Its shares have collapsed from 70p at IPO when it raised cash it claimed not to need as it was already drowning in cash and generating cash, to 33p today. All the signs are there that a car crash is on the way it is only a matter of when. As a footnote, in prior issues I have covered Daniel Stewart (DAN) more than once. Its shares are currently suspended at 1.55p for the 3rd time in a year as it undertakes its 3rd bailout placing within a year. All the signs are that fraudster Rob Terry of Quindell infamy is deeply involved in this company. Fundamental value post placing will not be anything more than 0.2p and with Terry involved there is no fundamental value in reality. This will be a short to open up as soon as the suspension is lifted.
Tom Winnifrith’s
5 mo de l por tf ol i o s : Growth Income Gold Recovery Penny Shares
S u b s c r i b e t o day
newsletters.advfn.com/tomwinnifrith UK Investor Magazine — 27 — November 2015
the house view
The House View: Bears are the only regulators in town O
nce again a major fraud has emerged on the AIM Casino and once again it was the bears who called this one to account – we refer to Globo. The official regulators at the FCA, AIM Regulation and the firm that should have been ensuring that all was correct, Nomad RBC, failed abysmally. For several years members of the bear community including several writers at ShareProphets have been raising red flag concerns about Globo. Our concerns were ignored. The company was able to raise money from London investors unhindered. But the scale of the fraud surprised even the London bear community. Globo is now in administration and investors have lost everything. It now seems that a global network of distributors was largely fictitious. The UK bogus distributor was meant to operate from offices just three miles from the City but these turned out to be a residential apartment. We British Bears are shamed that we did not check this out and it was left to a New Yorker, Gabriel Grego of QCM, to expose this. But how did those who were paid vast sums to verify Globo both at the Nomad but also at its auditors Grant Thornton not do what appear
to be very basic checks? The well paid City folk argue that they deserve big fees because of the risks they face if they goof. But we all know that RBC and GT will face no sanction of note. In an ideal world both would be clobbered with individual fines as would the individuals at GT and RBC who goofed. That would be a warning shot to other overpaid City folk that there really was a risk in not doing their job properly. But it will not happen. It never does. And so the system will go on as it has done for years. It is a system of regulatory failure where no-one is ever held individually responsible. And that is where the bears come in. Okay many of them have a motive in exposing fraud – they are short of stock so make money if shares collapse. Very few fraud busters do it for sheer pleasure. But the bears are the only folk out there who are exposing fraud. Private investors often don’t like bears. But they should appreciate that shorting is a high risk occupation. Bears only short when they are sure and they tend to be very experienced analysts who do a lot better research than, say, writers at the IC or BB Morons. The bears are the ONLY regulators in town. It pays to listen to what they have to say.
UK Investor Magazine — 28 — November 2015