Good morning, it's Paul here with the SCVR for Thursday.

Estimated timings - I'm running late today, so will keep going until about 6pm. Apologies for any inconvenience. Edit at 20:05 - I'm wondering why I put in estimates for timings. Anyway, today's report is now finished.


De-listing risk

In the small caps world, we always have to be wary of the smallest companies, as they sometimes (often without warning) announce their intention to leave the stock market and become private companies (known as de-listing).

This usually does instant, and major (typically about -50%) damage to the share price. For this reason, it's vital to avoid buying micro/small cap shares where there's a risk of de-listing.

Off the top of my head, these are the main reasons (hence risk) of a micro cap de-listing;

  • Running out of cash, and no appetite from the market to provide fresh equity funding
  • Story stock that has gone stale - i.e. everyone's heard the story, and it's never worked, so impossible to get even gullible investors to back it again
  • Little to no liquidity in the shares - hence there's no point in being listed
  • Costs - often linked with the other points above - all the various costs of a listing can mount up to £100-200k, even for the smallest companies - e.g. broker/NOMAD, listing fees, PR, NEDs that probably wouldn't be employed at a private company, regulatory burden, wasted mgt time, etc. If there is no discernible benefit from being listed, then why continue with it?

It's worth checking our existing holdings, to see if any micro cap holdings display those traits. Covid-19 & the recession it's triggering, could well accelerate the de-listings of some micro caps. Hence why I mention it - this is an increased risk that could us money.


Getting rid of bad investments

It's tempting to allow bad investments to languish at the bottom of our broking account. I had one situation like that this week, Malvern International (LON:MLVN) which issued an update that sounds terminal. Without refinancing, it says cash will run out in May, i.e. imminently. I had previously bought quite a lot in a 4p placing during the bull market, but the turnaround plan didn't work. Thankfully I got much of my cost price back, by top-slicing when it initially rose to about 7p. However, the rest are now almost worthless…

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