Small Cap Value Report (17 Dec 2015) - ZYT, CHA, BOOM

17th Dec '15 by Paul Scott

16 comments 17439 reads

Good morning!

I'm interviewing the CEO of Zytronic (LON:ZYT) this afternoon, am looking forward to that. I've only had one reader question submitted so far, so could do with a couple more. Therefore if you wish me to ask the CEO of Zytronic anything specific, please submit your question using this simple form, and if it comes in before 2:30pm today, I should be able to ask it (the interview starts at 3pm)

Concha (LON:CHA)

Share price: 0.75p (down 71% today)
No. shares: 1,552.7m
Market cap: £11.6m

Termination of investment discussions - let me translate this as: the big ramp finally unravels. Concha is just a cash shell, which only had £5.7m in it when I last looked at it here on 31 Mar 2015. I warned readers that the £92.5m market cap (once options were included, or £78.8m without, at 5.33p per share) was completely ludicrous. When I find over-priced junk, I don't hold back, because people need to be warned, and my concluding comments on 31 Mar 2015 were:

"It will be fascinating to see how this pans out. Anyone buying the shares is crazy, as it's nothing more than a wild & grotesquely over-priced speculation at the moment. Let's see if anything of substance does appear, to justify this absurd valuation. It's going on my bargepole list for now though. - See more at: http://www.stockopedia.com/content/small-cap-value..."

The company had said it had found an exciting but unspecified investment opportunity, but that has now fizzled out. So the valuation now resets back to what it should be for a cash shell, which is at par with cash. So the shares really need to fall further, to about half the current price to get there.

It was blindingly obvious that this share would collapse sooner or later - you can't defy gravity forever, by valuing a cash shell at £70-85m more than its cash pile, justified simply by vague assurances that an exciting investment is going to be made with the £5.7m cash.

It's just a pity that I wasn't able to get a short on, but never mind. Frankly, it's just embarrassing that silly ramps of this nature keep happening on AIM. Part of the problem in my view, is that AIM has no minimum free float. Therefore it is very easy for…

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Mark Carter

17th Dec '15

Thank you Paul for providing us with so many valuable lessons.

00mrmark00

He also said in the same podcast that they would be announcing the change of broker on the same day... Placing ahoy?

FREng

Paul: Is this your first SCVR with a title that sounds like the start of a Drum & Bass song?

cic

Paul, Can you explain to me why a cash shell should be valued at the cash on its books. This implies that the cash may someday be paid out to investors or used for an investment that will pay out at least that in the end. Since many cash shells seem to exist for the purpose of paying the directors fat salaries until the money is gone, I value them at ...zero!

Ramridge

Re. Audioboom (LON:BOOM) It is quite amusing now to think back and remember the ways internet companies were valued during the dotcom bubble years. Revenues per eyeball, webpage click, webpage impression, web traffic, to name the few I can remember. All marketing and development costs were immediately capitalised and accepted without batting an eyelid.

rivaldo

Paul, thanks for the opportunity to ask questions to ZYT.

I have a slightly off-kilter question. The new 12 sided £1 coin will be introduced from 2017, and all vending and gaming machines will need to be changed. Is this an opportunity for ZYT to get operators to upgrade/improve at the same time as making the necessary modifications to the coin chambers?

Also, we're moving inexorably, if slowly, towards being a cash-free society. How much of ZYT's revenue is ATM-related?, Or do ZYT see usage of ATM machines in other ways once a cashless society comes about?

Paul Scott

Haha, love it!! ZYT-CHA-BOOM certainly does have a ring to it LOL!!

dead dog

A great service to all use small invester

maillotàpoisrouges

Off-set by things such as self service tills (think M&S, Tesco and WH Smith), all have touch sensitive screens.

loglorry

Hi Paul - think you are wrong about the way placings in things like BOOM work. It is actually even worse. The company pays for some PR. This is often in the form of dodgy video interviews, proactive investor, tips TV etc. etc. This is all paid for by the company. It also sometimes hires well known stock tipsters to make positive comments. This inevitably pulls in the punters and as they see the shares rise they get more and more excited.

At some point and crucially before the placing those in the know start to get short the stock selling into the strength generated by the PR.

The company now turns to its brokers to do a placing and the first people who are willing to take part are those short who happily cover their shorts lower in the placing. Everyone's happy! Except of course the mugs that believed the daft PR.

Nothing illegal about any of this because the shorts are not inside on the placing when the stock gets ramped. The company knows it can't raise money without the help of the larger short investors because it's not practical to deal with hundreds or even thousands or retail investors and offer them rights issues etc. with a retail compliant prospectus.

It is important to realise though that this is the mechanism these types of companies use. It is fairly easy to spot just look at the cash burn and when they are starting to run out watch out for the CEO doing the usual junkets on the promo outlets.

Log

thescoop

18th Dec '15

Paul et al.,

Rob Procter was hesitant in mentioning the change of broker and the announcement due to take place this Monday, in an interview hosted on Audioboom (not the TipsTV interview given a day later, and not for any paid-for interview). I don't believe it was a blatant ramp at all, but I'll let you decide for yourself (listen from 4mins in): https://audioboom.com/boos/3959309-369-audioboom-ceo-rob-proctor-and-ex-market-maker-wayne-grossman

The reason for the rise over the latter part of this week was due in part to clarification made in the interview when Rob explained that this year's expected revenues of £500k (five hundred - substantially more than the £50k you have referred to) would not be met, and that although revenues were below market expectations as noted in Monday's RNS:
http://uk.advfn.com/stock-market/london/audioboom-BOOM/share-news/Audioboom-Group-PLC-Year-end-trading-update/69683579
This, apparently, was due in large part to an accountancy technicality where although BOOM had received payment for a service/es because BOOM had not had time to provide the advertisement services paid for before their end-of-year, and so some revenues had to be deferred to Q1 2016. I defer of course to you, Paul, in explaining the technicalities of accountancy rules.

I agree with you that BOOM is likely to go for a placing, but I suspect it will be at little or no discount to today's price, and shall be for growth and not to to replace batteries in any floundering life-support machine.

It appears from the interview that there will be good news flow through to the end of February, with Audioboom's app to be built as a 'native' app in an as yet undisclosed mobile OS; BOOM are also probably going to get some other big content providers in places such as India (think audio casting cricket matches) etc.

You used to love this company, Paul, because it had potential. IMO it still does.
Best wishes and Merry Christmas to you and all your readers.

My inability to write coherent sentences shines through once again! Sorry folks, but I hope at least my criticism over Paul's comments shines through. This stock IMO has legs and is well worth keeping an eye on, starting with clicking on the links I've provided above. I look forward to reading feedback.

19th Dec '15

Hi Scoop,

Audioboom (LON:BOOM) might well still have potential, but I don't buy shares just on hope value any more - as it's a fairly sure fire way to lose money.

Even if turnover does rise from £50k to £500k each 6 months, that's still nowhere near enough - its costs are running at about £3m per half year. So you need turnover to rise not by 10 fold, but by 60 fold, just to get to breakeven!

More pressing is the cash burn. As I mentioned in the article, there's only enough cash to last until mid-2016, so another Placing is a certainty. As we've seen with numerous cash-burning micro caps, these are usually done as discounted Placings, with no Open Offer. The latest recent examples being Snoozebox Holdings (LON:ZZZ) (done at a 25% discount), and last night, Rightster (LON:RSTR), done at a discount of about 47%.

So why on earth would you want to buy in the open market, when you can be virtually certain that a discounted Placing is imminent? I think you would have to be a reckless optimist for that.

People are probably already shorting this share, knowing that a Placing is coming, and they can close their shorts at a profit using new shares procured in the Placing at a discount. It's free money basically for the shorters, paid for by people who buy the shares in the open market now. Shorting ahead of a Placing is not actually illegal, providing you haven't been told there is a Placing, but have instead just deduced that there is likely to be a Placing coming.

I would look again at BOOM once it has proven that it has a viable business model, but so far that is completely lacking. It's all just jam tomorrow at the moment. It's a nice App, but like many Apps, it's not a viable business yet.

Good luck with it - you'll need it!

Regards, Paul.

It's never a good idea to bet against the views of Paul Scott, but in this case I think I'll keep holding for a while longer at least. Thanks for your feedback Paul, iIl shall definitely keep it in mind.

Hi Scoop,

Well I wouldn't say that - I get plenty of things wrong, as everyone does. But generally I get more right than wrong, which is all that's needed.

It's just that in specific cases, the downside risks are very clear - only having 6 months' cash left in the kitty, for a heavily loss-making business, is one of the highest risk situations you could possibly entertain. It might be fine, you never know - they might be able to convince existing & new investors that it's worth chucking in another £5-10m, but there's a chance that investors may be reluctant to do so, in which case they can just name their price, and existing shareholders are potentially diluted to oblivion. I cannot understand why anyone would cheerfully accept such a gigantic risk?

Regards, Paul.

shauniekent

Thescoop, once youve been burnt once or twice by companies and directors telling outright mistruths, concealing, twisting and obsfucating, you learn not to ever base an investment decision on what they say.

Ignore what audioboom ceo says. Entirely. Look at the numbers and make your own mind up, not swayed by ceo or anyone else.
98% certainty Audioboom will be ramped, and it will do a placing.

Small Cap Value Report (17 Dec 2015) - ZYT, CHA, BOOM

Concha (LON:CHA)

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Paul Scott

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