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Living in Neverneverland #finance

Yes, Britain is now living on the never-never. Credit and debt appear to be official policy. The government is trapped in debt and so are most its citizens. The government can just print money and cause inflation which will effectively inflate away debts in sterling terms but not in the terms of the reserve currency, the almighty dollar. The thing now is, the almighty dollar is being devalued too, as are most currencies. A global economy based on ever-expanding currencies which of course lead to property bubbles in our capital cities. We are in Neverneverland but we’re not the only ones!

Living in Neverneverland

Uncertainty

The economic uncertainty has to lead to a stock market that favours the biggest and the best and so the companies I tend to invest in are losing value. Despite the decline in the value of small caps and AIM shares, there are now bargains to be had on the stock market but choosing what to invest in is harder than ever.

Rumour

A rumour can send a share price soaring northwards or crashing down. Yesterday, the rumour concerned Premier Foods, one of Britain’s biggest food manufacturers and the rumour was of a takeover interest from Nestle. The share price soared until the company issued an RNS to dampen enthusiasm. That was a shareholder-relations disaster. Had I been writing the RNS it would have been along the lines of – While there is always M&A interest in Premier Foods, in this instance the rumours are false. Then I would have gone on to exploit the opportunity to raise shareholders expectations and confidence. Virtually all companies have absolutely no idea when it comes to public relations and even less when it comes to shareholder relations.

AIM companies like Solo Oil are crap at investor relations too. Solo Oil issued an RNS yesterday as well announcing a 1 for 20 share reorganisation and even more dilution. This will in no way increases the market capitalisation and the RNS knocked even more of the market cap yesterday. Helium One owns a lot of shares, doesn’t it? Or have they been dripping those back into the market? Solo Oil has great assets and prospects but needs an addition to the board of someone who understands the market.

Neverneverland

This Neverneverland attitude is also called leveraging. Premier Foods leveraged and leveraged as did companies like RBS to fund acquisitions until it all came crashing down on them in 2008 and in the 9 years that followed that crash they have struggled to face reality and pay down debt. At least they are facing reality and I think Premier Foods could not only survive but come out of it much stronger and less leveraged. They could survive the next recession when others go under. Premier Foods needs to improve quality but most of all it needs to drastically improve marketing. They also need to jump aboard the gluten-free bandwagon with a lot more enthusiasm.

Valuable assets

When a company is rubbish at public relations and clueless at investor relations the value in the company isn’t appreciated by investors until the company makes some sort of breakthrough. That might be turning a profit, hitting oil or making a breakthrough with a new drug. These events send the share price soaring and I’m hopeful that Solo Oil, Immupharma and Verona Pharma will all make such breakthroughs. Solo Oil being the one most undervalued but Verona Pharma could double in value at any time.

Shorting

Shorting is based on rumour but it depresses the share price. The value tends to be stored up. The real value of the company often increases but the market becomes aware of the shorting of the companies shares and expectations go negative. This can lead to a depressed market cap and an opportunity for private investors. Both Carillion and Tesco have been shorted recently and their share price dropped as a result. Both now seem undervalued and Carillion pays a dividend that now seems very generous.

We can now see some companies trying to bring down debt and face reality and others are leveraging and stay in Neverneverland just like their customers.

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