Another 4 day week, I hope you all had a great Easter weekend.
I spent in the countryside in Dorset. While there, I updated my Penny Stock Portfolio, which has stagnated a bit recently. I started it off by adding one stock a week accompanied by a write up. Unfortunately, due to a change in circumstances, I’ve been unable to keep up with this rate of posting. Nevertheless, I’ve had several people get in touch and ask if I would continue with a Penny Stock Portfolio. As a result, I’ve added a bunch of companies to the portfolio over the weekend. These are companies that I think offer long-term potential, I added some that have a market cap of ~£100 million, I had to do this just to get some diversification in there. I will try and do the write ups when I can. Also, I’ll try and comment on these stocks as part of the Penny Stock post analysis when possible alongside other companies.
It’s a bit haphazard as I haven’t focused too much on timing, I just added them at their closing price on Thursday. We’ll see how these get on – the portfolio has been given a bit of a boost today by Motif Bio, which we’ll come on to.
A very quick summary of some the companies feature:
Motif Bio, hugely undervalued, especially with the positive data readout this morning. Before the listing and funding issues, it was trading at 60p. It is now 30p and significantly de-risked. Petards has really strong fundamentals, strong balance sheets. Also, operating in the privacy and surveillance space, I think this company has a positive macro trend – it’s a sector that’ll grow in years to come. Tlou and Audioboom, I couldn’t resist at their current entry price. In the long-term, I think these companies will see their share price rise. Gear4Music, System 1, Best of Best and Science in Sport – these are my growth businesses. Proper businesses that provide some diversification. The companies have strong expansion plans underway and with the exception of Science in Sport, which is a little more speculative, have a great Return on Equity and Return on Capital. Thalassa, I just love the management here. SDX Energy, Victoria Oil and Gas and Jersey Oil and Gas were brought to my attention by Malcy, from Malcy’s Blog – these companies have big milestones going into the summer. Anglo Asian is at a great entry level and I think is currently very undervalued. Obviously, old-favourite Asiamet is rock solid. Also, I have followed Paul Scott’s lead on Revolutions Bar, which seems to be currently undervalued and offers a little more diversification.
There you go, a very quick whip round of why I think these companies have long-term potential. However, needless to say, do your own research.
Now, on to some stocks…
Market Cap: £67.5m
Don’t say I didn’t warn you!
Motif Bio today announced positive topline results from REVIVE-1, a global Phase 3 clinical trial of its drug iclaprim. We knew this news was coming, the question was whether it would be positive or not? The share price rise we’ve seen over the last week and previous Phase clinical trials, which have given Motif a good steer on the efficacy of the drug, suggested it’d more likely be positive than not.
The AIM company has seen positive results from REVIVE-1, the first phase, of its Phase III trials. REVIVE-1 was a 600-patient double-blinded, active-controlled, global, multicentre trial, in patients with acute bacterial skin and skin structure infections (ABSSSI). It compares the safety and efficacy of an 80mg intravenous dose of iclaprim, Motif’s antibiotic, with a 15mg/kg intravenous dose of vancomycin. Treatments were administered every 12 hours for 5 to 14 days.
60.4% of patients receiving iclaprim demonstrated resolution or near resolution at end of therapy, compared to 58.3% of patients receiving vancomycin. A clinical cure – defined by a >90% reduction in lesion size – was seen in 68.5% of patients receiving iclaprim and 73.0% of patients receiving vancomycin. The efficacy numbers stack up well to vancomycin.
As population, we are developing resistance to existing types of antibiotic. Many antibiotics are becoming obsolete. Therefore, in the words of William D. O’Riordan, Chief Medical Office for eStudySite: “iclaprim, if approved, could provide a valuable new antibiotic treatment option that is urgently needed to offset the rising problem of bacterial resistance”. The benefit of iclaprim is not necessary being better, or more effective, than the current antibiotic – it’s the fact that it is an alternative antibiotic that is valuable.
Next steps now for Motif Bio are receiving data from REVIVE-2, the second Phase 3 trial, which uses an identical protocol to REVIVE-1 but has different trial centres. Results from this are expected in the second half of 2017. Then, the AIM company hopes to submit a New Drug Application (NDA) for iclaprim for the treatment of ABSSSI in early 2018.
Market Cap: £10.3m
A bit of a mixed bag of an announcement this morning from Westminster Group. The AIM company announce a placing, a new broker, a final drawdown on death spiral financing and a corporate update. Plenty for investors in this one.
It has 10 likes and 6 dislikes on Vox Markets, which is probably about right. If you’re bullish, you can take this as a positive announcement. If you’re bearish, then there are plenty of red flags to spot.
Let’s take it in order.
First, the placing. WSG will the issue of 10,000,000 at a price of 10p per Placing Share. This represents a not insignificant discount of roughly 16%. Also, with 113,243,420 now on issue including the newly issued shares, this placing equates to chunky dilution also. Therefore, it is no surprise to me that the share price is down 13.5% this morning.
Following successful completion of that placing, Westminster Group has appointed Beaufort Securities Limited as Joint Broker with immediate effect. Beaufort receive 500,000 warrants exercisable at 10p per share. Furthermore, Beaufort receive a further 250,000 ordinary shares in satisfaction of their first year fee and an additional 100,000 warrants which have an exercise price of 25p. I get a little concerned when companies begin paying their fees with stock. One, it indicates they’ve not got the cash. Two, if the share price struggles, this will compound their miseries, services will no longer accept stock and WSG will be out of cash. A personal point also, I tend to tread carefully when I see Beaufort are involved.
Anyway, on to some (potentially) positive news, the AIM stock converted the final £500,000 Darwin loan note. The positive here is Darwin is nearly cleared. Death spiral financing, hence the name, causes downward pressure on the share price, so will loan notes are being issued the price is likely to crumble. Therefore, once they clear, the theory is that the price will shoot back up. Is this true? It has happened in the past, but is by no means a foregone conclusion. The company needs to merit a rise in the share price, it will not just happen because Darwin or whoever have exited. Many companies suffer from death spiral financing because it scares of private investors. Therefore, when the death spiral provider exits, there are no investors willing to buy back the shares no matter how ‘seemingly cheap’ they may be. I try and avoid companies that have been involved with death spiral financing. It is a last resort, so the fact that they have had to take in the past is not a good sign.
Having said that, Westminster try to the company has tried to assure investors on this point – “the Company has agreed that during the next six months no member of its group shall enter into any convertible loan note or any analogous or similar financing arrangements”. This worries me. 6 months is really no time at all and the fact that the company are not willing to commit to longer timeframe would make me cautious, particularly given the company have today drawndown a further £500,000 and raised £100,000 – and still they think they may need to re-visit loan note arrangements in 6 months.
Finally, the seemingly positive news. Westminster announce that the “significant 15 year airport security opportunity in the Middle East with revenue potential of £35m per annum has made significant progress recently”. It goes on to say that given recent security events it will be be likely to include “a wider range of airports in addition to the main international airport” and “a wider range of adjacent services which could further increase revenue potential”. Of course, this is all caveated with “there is never any certainty of the outcome or timing of such prospects” and “in the event that the contract is finalised, which at this juncture is not guaranteed”. It smacks of desperation for me. I mean, I wouldn’t place much value on this as there is nothing concrete. If the company hadn’t made a placing, or appointed a broker, or drawdown on their financing arrangement, they wouldn’t have announced anything. It is clear to me that they’ve added this in to try and sweeten the RNS, which makes me very skeptical. Tread with caution here.
If there are companies that you want me to cover in the coming days or have significant news due imminently then let me know. My aim is to deliver value to readers, so I want to ensure I’m doing this as much as I can.