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As private investors we have come to loathe private placings. If the shares are 10p before City fund managers are made insiders they are 8p by the time a placing is completed as somehow word seeps out. Odd that. And so the placing is done at a 20% discount to 8p and a stock which you were paying 10.25p a week ago is suddenly being offered to institutions only at 6.4p. It is not as if the fund managers are any more likely to be long terms holders than you are. They will spiv the shares out at 8p given half the chance and so boast of a 25% return in 2 weeks.
What makes the process so much more infuriating is that the companies and their advisers deliberately attempt to drive the share price up ahead of the placing by getting private investors to buy just ahead of the start of the institutional road show. So you guys overpay just so that the starting price is 10p ( and end price 6.4p) rather than 9p (and 5.6p). Fair? No. It really is nauseating but there are some warning signs.
On the spin tack.
1. The house broker will normally be prohibited from publishing research just before a placing. So watch for a raft of notes from “independent” research houses such as Edison and Hardman.
2. The CEO will do a raft of interviews with folks like Proactive Investors and in resources present at Proactive or Minesite or similar forums.
3. The PR folks will call in favours and you will see the shares tipped in magazines and puffed up in certain parts of the press.
4. There will be a string of upbeat RNS releases. Most companies that are loss making seem to issue an RNS once a month with good news anyway. But when it becomes even more frequent than usual watch out.
Score three of four on this checklist and then do your maths – is the company likely to need cash within 18 months? If so the placing is on its way.
Tom Winnifrith is one of they Keynote speakers at ADVFN’s UKInvestor Show on April 13th. Also appearing are Britain’s Buffett Nigel Wray, property guru and secret millionaire Nick Leslau, gold guru Dominic Frisby, bear raiders Evil Knievil and Lucien Miers, top chartists Alpesh Patel, Zak Mir and John Piper, ADVFN boss and master investor Clem Chambers, mining guru Amanda Van Dyke, Christopher Booker plus the CEOs of companies such as Northern Petroleum, Stanley Gibbons, Leyshon Resources and many more. For more details or to book your free ticket go here.
On the bully tack? Well it is simple. Silence critics. Fire off the odd lawyers letter from a big City firm. Most publications cannot be bothered to fight big legal battles. They will just pull articles and walk. If you are really sneaky you then let it be known, via Bulletin Board gossip, that you have beaten off your critic and thus the only “true” analysis must be the bull tack.
Au contraire, good companies shrug off criticism. It is those who need to raise cash that threaten and bully. Or just bluff on this count. Let it be known that you are “considering action” against your critics. Your Bulletin Board supporters will interpret this as the bull tack being correct and critics being somehow dodgy. That should do the trick.
Hey presto. Your shares tick up. Private investors are stuffed and the placing charade is underway. The whole process is just maddening. And it happens all the time.
This article first appeared in Tom Winnifrith’s bi-weekly newsletter The Tomograph. It is free to register and the Wesdnesday edition always contains a free share tip. To sign up in time for today’s free share tip go here
To be fair, if anyone knows if this is how it’s done it will be you.
Up in arms about “bully’s threatening legal action” after the recent USOP complaint, yet you encouraged a company in which you held shares to take legal action against BB posters… So you were happy to hold shares in a company doing that back then, but now you say we should sell stocks that do that. Inconsistent and biased.
Aug 2010: Tom says companies taking legal action are strong and are for buying;
“BB Posters Beware – Brammers shows the way. by Tom Winnifrith
Nighthawk, a share I have shares in, has taken bulletin boards to court, meaning they can now sue BB posters. I applaud its bravery. I will applaud even more if it pursues these individuals and takes them for every penny they have. I hope the posters are made bankrupt by a libel claim. Nighthawk can cover its costs as the individuals are forced to sell everything they own. Go for it Brammers!”
Nov 2012: USOP threaten BB posters (amid a negative article by Tom Winnifrith).
Dec 2012: Tom says companies taking legal action are weak and are for selling.
Turncoat Tom
Hence the infamous saying ‘Let the trend be your friend’
Who were you thinking of hen you wrote this whine, it sounds like your fave share AAU, Winnifrith you dumb chunk of poo.