Following on from my five to sell for 2018, which resulted in a gain of 38% as a bear, 2019 seems to offer more pickings. After all, the markets are very wobbly and we have the chaos of Brexit to look forward to. So here are my five to dump now for 2019.
First on the list is AIM-listed Telit (TCM), which is retained from my 2018 list. Frankly, I am surprised it has lasted this long – but this is AIM. To remind you, it was set up by a fugitive from US justice who had employed his wife as an art curator, the former finance director is accused of insider dealing and is under FCA investigation, its dealer network was exposed as a sham and it is drowning in debt which I daresay the bank wants repaid. This, presumably, is why the company is selling its prize asset, although the sale has already been delayed once and my bet is that the wheels come off this quarter as the Chinese outfit which is supposed to be buying it fails to raise the cash needed. Even if it does, I wouldn’t rule out a last-minute renegotiation. And that all brings us to the balance sheet: even if the sale goes through, I reckon the bank will have most of the cash to settle its loans and then walk away. That could leave Telit horribly exposed, with only cash-guzzling enterprises left and not enough cash to get it to profitability. Yet the current market capitalisation, at 129.9p, is £166 million. And of course, we have the FCA crawling all over the company which is alleged, still, to be under the influence of former boss Oozi Katz who was apparently given his marching orders as his previous history with US justice came to light. The long and the short of it is this is an accident waiting to happen and in a market where raising cash is getting more and more difficult it seems only a matter of time before the wheels finally come off for good.
Next up is AIM-listed First Derivatives (FDP) which Tom Winnifrith has been exposing as, shall we say, colourful. Its market capitalisation is over half a billion quid and with the shares at £21.20 there is a very long way to fall here. But with serious questions over its IPO, more questions over the way it presents its profits (given that they don’t all fall to the company) and lots more, again, with market turmoil abounding this one looks ripe for a big fall. My third one is AIM-listed Haydale (HAYD) which even its own paid-for research house Hardman admits will need more cash over the next couple of years. It had three profit warnings last year within six months and the shares collapsed from around 78p to the current 31.75p as the company sat on its hands and didn’t raise the cash it needed – preferring, instead, to issue a series of RNS Reach announcements. But the insiders have been selling, as have the institutions and raising cash is getting more and more difficult in the current market – evidenced by the paltry £250,000 the company finally raised at 20p just before Christmas. Its products – graphene – looks interesting, but the company needs something like another £3-4 million to get through the next two years and that will cause problems when it sits down with its auditor to consider the term Going Concern. Given that its market capitalisation is just £8.7 million that looks a big ask.
Fourth on the list is from the ShareProphets AIM-China Filthy Forty – of which there are just seven remaining and one of those (China New Energy, CNEL) has announced that it is considering taking its ball home. The one I am looking at is Walcom (WALG) as it has been having a spot of bother getting paid by its largest customer. That’s bad for cashflow (good perhaps until the end of this month), bad for business (losing your biggest customer) and to top it all we had a profit warning at the end of November, and a statement (again) that the Company may be in a position where it is unable to settle its liabilities as and when they fall due. What’s not to like! At just 0.375p it is already a bag of crisps stock – just make sure you get yours if you own this one! For my final selection I feel a bit spoilt for choice. Do I keep UK Oil & Gas (UKOG), plump for Yu Group (YU.) or go for fully-listed Interserve (IRV)? All three look set for big falls, but on balance I’m going for Yu Group which has had to ‘fess up to a balance sheet calamity and write off about £13 million. It only listed in 2016 and having posted profits which are now losses and is no longer promising to return to profitability in 2019 it looks set to fall further. It is being investigated by the FCA and I reckon its net current assets could be heading for zero – so a fundraising is in the offing. At the current 74.5p its market capitalisation is just £12 million which means it will be a bucket shop special. What’s not to like! We shall see how my new portfolio does as 2019 progresses.
Filed under: Telit, First Derivatives, Haydale, Walcom, Yu, Independent Oil, Next, Corero, TPOP, Tesla
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