Small Cap Value Report (1 Jun 2015) - PLUS, TRB, MLIN, GBG | Paul Scott

1st Jun '15 by Paul Scott

33 comments 25370 reads

Good morning! I'm back after a week's holiday, bright-tailed and bushy-eyed! It was my first week off since starting this column in 2012, so it felt strange not having to compose my thoughts every morning and type them out into an article. It's good to be back though, so here goes.

Plus500 (LON:PLUS)

If you thought there was an odd smell in the air this morning, you've probably detected the smell of burning bears! Yes the shorters have taken a spanking on this controversial CFD provider (CFDs are a leveraged way to buy shares, a bit like spread bets, but taxable), since very surprisingly a bidder has appeared.

400p cash takeover bid - Playtech is the bidder, and they are paying 400p per share, all in cash. The deal is expected to complete by the end of Sep 2015, subject to a shareholder vote, and regulatory approval.

PLUS shares are currently 385p in the market, so there's a potential 15p profit to be had, 3.9%, by holding the shares for four months. However, set against that is the risk of the deal falling through (e.g. if Playtech find more skeletons in the cupboard), so if I still held, I'd have gratefully taken the 385p that is currently on offer, in order to have certainty.

Sadly, I sold my shares for about 302p last week, as various comments made at the AGM sounded disingenuous to me. Pity, but never mind.

This has been a fascinating share to follow - and a good example of how bear raids are carried out. Bears (shorters) are generally shrewd and experienced investors, so they find companies with some sort of serious weaknesses, open short positions, then shout from the rooftop about all the things that are wrong with the share.

The latest method of doing this is by posting a dossier of allegations and revelations online. An individual calling himself Gotham City did this last year, with a devastating dossier revealing the many shortcomings at Quindell. He wiped £1bn off its market cap in one day, and the shares never recovered to anything like their previous highs of over 600p.

In the case of PLUS500, the usual suspects (UK bloggers such as Evil Knievil) posted alarmist comments about the company. I think there was a grain of truth in some of the comments, although they seemed to be wildly exaggerating the downside case,…

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shanklin100

1st Jun '15

Hi Paul

I am not convinced that anything the bears said was accurate; perhaps the nearest was the claim that PLUS could not cope with all the applications it was receiving for new accounts.

Unfortunately there was/is a major problem which IMHO the board should have RNS'd to the market on 9th January, as opening new accounts is central to their business model. This was eventually followed by a number of less than convincing, and arguably contradictory, RNSs providing descriptions somewhat aligned to the problems they have. Consequently PLUS's reputation and business has been largely trashed and without Odey's buying, the share price would be a lot lower.

These are the sorts of situations where IMHO directors should end up in jail, but being the UK this will no doubt not happen.

Amazing how much damage directors can do to a business by failing to ensure that a little bit of paperwork does not meet the necessary standards.

All IMHO.

Cheers, Martin

Ramridge

Hi Paul -
Another fascinating aspect of this development is Crispin Odey's trades. He increased his stake in Plus to 19% of the company in several tranches at near bottom prices.
Either he is the shrewdest fund manager in town or it is a blatant case of insider knowledge.
Given the continuing history of scandals in the financial services industry, I know where I would put my money.

imranawan

Hi Paul

Lakehouse Lakehouse (LON:LAKE), published interims which looked pretty good last week. I purchased an initial stock, and operating margin was pretty good for the type of market they operate in. Was a recent IPO, and I see Mark Slater has also invested. Looks like an interesting GARP stock.

Best wishes,
Imran.

cafcash49

Hi Paul, Thanks for everything on Plus500; I bought on 22nd and a few more on 26th and have now taken your advice and sold. Nice 38% profit. I think you were right to say take it now rather than wait for the 400p which could of course collapse. Thanks Paul. Charles

underscored

"If you thought there was an odd smell in the air this morning, you've probably detected the smell of burning bears!"

Thanks for the laugh! I have just spat half my coffee over my desk, then snorted the remaining 50% up my nose and down my jumper!

Rusty2

I think he had 12% before the price fall? Think he was buying his way out of trouble, if not for him I'm sure the shorters would have driven the sp down under 200p.

Paul Scott

Hi Charles,

Glad you did well on your trades. Although just to emphasise, I never, ever give advice (as I'm not a regulated person, and in any case I don't actually want to give advice!) So my comments are always just my personal opinions - sometimes right, sometimes wrong. The ethos here is on helping people to make their own decisions, rather than tipping or advising, as they do on other sites.

Regards, Paul.

Hello Paul, welcome back, last week PTCM releashed their results for 2014, I would be interested in your opinion if you have a chance to look at them.

Herbie,

Yes indeed, I am sure that Odey's firm's heavy buying in Plus500 (LON:PLUS) helped arrest, and reverse the share price plunge. Also, when the tide does turn, heavily shorted shares can rebound fast on a bear squeeze - as the shorters then become forced buyers.

Odey's firm has been a big buyer of Tungsten (LON:TUNG) too, I seem to recall - another share that was attacked by bear raiders. So their strategy seems to be to throw more money at positions that go wrong. Could get messy, although it's worked with PLUS.

The fact that management are happy to sell out at 400p suggests to me that PLUS must have been badly damaged by recent events. Indeed, today's statement says that regulators in other territories are now looking at PLUS more closely, and requesting info.

Part of me is wondering whether to open a short now on PLUS today? After all, risk is that the deal goes through at 400p (there's not likely to be a higher competing bid, but that is an additional risk).
The upside for a shorter is that the deal falls through, and then the shares could plunge back down to 200p, or even lower, who knows? So quite an interesting one to ponder.

Regards, Paul.

Graham Neary

The main point about Plus is that it doesn't hedge customer bets. This is why the profits are so huge, because it just takes the other side of the trade against the worst traders.

Is there any problem with that? Yes - for one thing, it's massively risky, because even bad traders as a group can have winning streaks sometimes. Secondly, it gives Plus every incentive to play fast and loose with the market prices which they quote their customers and allow their customers to trade at (and you can read all about that in customer reviews). The consequence of doing that is a reputation for dodginess and foul play.

Is any of this illegal? No. But the profits are of poor quality - high risk and at the cost of failing to build any customer goodwill..

Good luck to Playtech and well done to those who traded it correctly. Playtech clearly believe they have found a level at which it is undervalued.

Hi Paul, My apologies for use of word 'advice'; I fully understand you don't give advice but I respect your opinions and any actions I take are fully my own responsibility.
Look after yourself. Charles

Gostevie

I have to commend Paul here for the way that he declares his own ethical stance regarding Molins (LON:MLIN) but doesn't try to ram it down anybody else's throat and analyses the investment case with his usual look-at-both-sides fairness. Bulletin boards could do with a lot more of that.

Hi herbie

The ft report (see below) on 26/5 says 19%. Unless he sold some after that.
http://www.ft.com/cms/s/0/b2521cd2-0395-11e5-a70f-...

ps.

ignore the above. I got your point Duhhh!

Small Cap Value Report (1 Jun 2015) - PLUS, TRB, MLIN, GBG

Plus500 (LON:PLUS)

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Paul Scott

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