My bearish world view is explained in full HERE. Given all that I say in that podcast it is exceedingly hard to come up with share tips of the year which are buy trades rather than shorts. But I start my picks with just such a special situation. No doubt some of you will think that I am utterly mad with this pick. It is run by a man, Richard Poulden, who is not universally loved and whose other AIM-listed company is one I have panned often as have my colleagues on ShareProphets. This company has not delivered on any of its targets, being hit by all sorts of acts of God (tropical storms, management illness) as well as making its own mistakes (signing up to a crap death spiral, some issues with licenses in Central America). I refer, of course, to Wishbone Gold (WSBN) a BUY at 0.15p with a target to sell of 0.3p.
Wishbone has a few, crap, exploration tenements in the country populated by descendants of convicts. But they are an irrelevant legacy. Its main business is the Black Sand gold trading company. Put simply, Black buys gold from small scale gold miners in Asia, Africa and Central America and ships it to Dubai for sale. Its margin on each sale increases with the gold price and given my global macro view, its no shock that I do expect gold to perform relatively well in 2019. The company was meant to start business in Honduras some 18 months ago but God intervened with a hurricane and then there were license issues. Those were all finally sorted the other day and that operation will be shipping material and rapidly increasing amounts of gold by the middle of Q1 2019. But the company also has gold sourcing operations in Asia (small scale) and in various parts of Africa. I do expect news of more African deals in the next few months.
Two recent fund raisings at 0.1p have pissed off investors, some of whom paid up to 1.3p per share before God and man intervened with all the issues. The first placing replaced the death spiral. The second ensures that the company has working capital met to see it through to Q2 next year when, with Honduras alone, it should be profitable and cash generative. So how profitable could the company be?
The expectation is that pre and post tax profits could be anything up to £1 million in calendar 2019. My guess is that it will be a bit shy of that. The year after, as more supply agreements kick in, that number could well be £2 million or much higher. The market cap at the offer is just £3.66 million (or just over £4.3 million on a fully diluted basis to account for a Black Sand share based earnout which is triggered when it makes profits of more than $1 million, which will happen this year and for warrant conversion). So the shares quite plausibly trade on a fully diluted PE of 4 falling to sub 2. Trading businesses should never command stellar PEs especially those like Wishbone which have fecked it up in the past. But as Poulden starts to deliver those bad memories will fade and a sensible re-rate would see the shares easily hit my target sell price of 0.3p and that makes it my first tip of the year 2019.
Filed under: Wishbone Gold, CSF Group, Pacific Tycoon, Davenport Laroche, Catenae Innovation, BBC
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