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Registry Direct

Overview


Registry Direct is a software business that provides share registry services to publicly listed and private companies. This includes keeping track of shareholders, facilitating the issuance of new capital, convening shareholder meetings and providing meeting minutes, share raising information and other required communications to shareholders. Registry Direct aims to provide low cost registry services to smaller privately-owned companies than have typically been ignored by the established share registry companies. The maximum raise is 6 million, with a post raise market cap of 20.5 million.

Founder


One of the main things I look at when evaluating the IPO’s of new companies is the strength of the Managing Director/CEO and how long they have been involved in the business. It was a key factor in why I invested in both Oliver’s and Bigtincan, and why I passed on Croplogic. Registry Direct’s founder is a guy called Steuart Roe. Steuart has been a key figure in the Australian investing world for years. He was involved in launching the first Exchange Traded Fund on the ASX back in 2001, and more recently was the manager of Aurora Funds Management from 2010 to 2014. It is his time at Aurora Funds Management that may potentially be a concern for some investors. Aurora Funds Management was created when three separate funds management companies were merged in 2010. One of the funds that was part of the merger was a fund founded by Steart called Sandringham Capital, and Steuart became the Managing Director of Aurora Funds management upon the new funds creation.

Without going too much into the details, the fund performed poorly, and Steuart Roe left the business in 2014. This article has some insight into the problems as does this hot copper thread where someone from registry direct actually turns up to give Steuart’s side of the story.

Having spent some time reading through all of this, it seems Aurora’s problems were caused by a few unlucky investment decisions rather than incompetence or mis-management. As a result, I don’t see how this should have any negative impact on how this IPO is evaluated. On the other hand, the experience and connections Steuart must have picked up in his time running investment funds seem to make him uniquely qualified to lead a successful share registry business. If you look at how quickly Registry Direct has grown since the business began in 2012 a lot of this has to be down to Steuart’s connections and experience enabling him to both design a product that fund managers and company owners would like, and have the connections to sell if effectively. Post listing Steuart will own just under 50% of Registry Direct’s stock and will continue in his current role as managing director. And all in all, I see his significant stock holdings and continued presence in the company as a significant bonus for this IPO.


Financials

Registry Direct are one of the few companies I’ve reviewed whose only pro forma adjustments actually reduce net profit.
Below are the unadjusted audited figures for the last three years:

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Whereas the figures once pro forma adjustments have been made are here:

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The rationale behind the reduction in revenue is that Registry Direct received consulting fees unrelated to the share registry business in 2015 and 2016 of $377,167 and $555,224 respectively that have been excluded from the pro forma figures. Interestingly enough, these fees came from Steuart’s old company Aurora Funds Management (Aurora Funds Management was renamed SIV Asset Management in 2016). While Steuart stepped down from his Managing Director position in 2014, he only resigned from the board of SIV Asset Management in June 2017. It would be interesting to hear what shareholders of SIV Asset Management think about the company shelling out over $900,000 to a company owned by one of its directors – but that is a topic for another day.

There can often be a real lag in revenue growth for software companies in early years, with every dollar of revenue dwarfed by massive investments in software development. That Registry Direct managed to grow its revenue so quickly is impressive, as is the fact the company managed to achieve profitability in 2015 and 2016, even if it was only due to the somewhat suspect related party consulting fees. 

Industry and strategy


The Share Registry market seems to be a relatively healthy industry, with good growth potential and profitability.  Computershare and Link, the two biggest companies in this sector in Australia grew their profits by 68% and 101% respectively over the last financial year. As mentioned at the start of this post, Registry Direct intends to diverge from these companies by providing cheaper registry services to a larger number of smaller privately-owned companies. The prospectus uses the below table to present Registry Direct’s proposed fee structure. 

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The prospectus also indicates they intend to drive this growth by allowing accountants lawyers and other professionals to sell “white label” versions of the Registry Direct software. From an outside perspective at least, this makes a lot of sense. If Registry Direct can offer simplified registry services through a standard software package, increasing customer numbers by allowing accountants and other professionals to sell Registry Direct’s software on their behalf seems like a logical way to increase revenue without hiring a large salesforce. This strategy should be further buoyed by the Turnbull government’s recent legislation changes regarding crowdfunding in Australia. These changes make it much easier for unlisted companies to raise money from the public, which should result in a dramatic increase in the number of private companies looking for cheap registry services.
Despite how promising this all sounds, it should be noted that at the date of the Prospectus, Registry Direct only had 60 share registry clients and its two largest registry clients made up over $400,000 of the companies FY17 revenue. It seems that last year at least, Registry Direct was still operating more like a typical share registry business, providing tailored services to a smaller number of high paying customers. This pivot to a larger number of lower cost clients may be good in theory, but it is worth remembering that at this stage it is more of a plan than current business operations.

Valuation and Verdict

At only $648,000 of FY17 revenue vs a market cap of 20.5 million, this IPO is a little more expensive than I would prefer. Market cap divided by revenue is a troubling 31.7, vs 6.6 for Bigtincan, a Software IPO I invested in earlier this year. However, considering the company was only founded in 2012 and just how quickly revenue has grown over the last few years, I feel that this expensive price is at least somewhat justified.

Overall, the main thing that makes me willing to overlook this high valuation is how confident  I feel that Registry Direct will be successful. The company has demonstrated that it can grow revenue quickly, has recorded profitability in previous years, and is led by an impressively well connected and experienced Managing Director. What’s more, the company is operating in what seems to already be a relatively profitable industry that is likely to see an explosion of demand thanks to the Turnbull governments legislation changes. While I would be happier if the price was a little lower, for these reasons Registry Direct will be my fourth IPO investment since starting this blog.

The GO2 People

GO2 is a WA-based labour hire company raising between 10 to 12 million, with a post listing indicative market capitalisation of 23 to 25 million. The offer closes this Friday.
The first thought I had when looking at the G02 IPO is that investors should be getting a great deal. GO2 owes 3.8 million owed to the ATO, has working capital issues with increasing receivables, and is set to make a loss for FY17. If the IPO doesn’t go ahead there seems to be a real possibility the company could be out of business in a few months. With that in mind, you would think the IPO would be priced low enough to ensure that the offer doesn’t fall through. Unfortunately for investors, this doesn't seem to be the case.

Company outlook

G02’s revenue has been on a bit of a roller coaster over the last few years. After only 20 million of revenue for the 2015 financial year, the company revenue shot up to 26.5 million for the first half of FY16 before falling off a cliff. Getting your head around the company’s revenue numbers is harder than it should be thanks to sloppily labelled profit and loss table in the prospectus. In the below table, the December 15 and 16 columns are half year figures, despite the profit (loss) label being “for the year.” Given this is probably the most important table in the prospectus, you would think someone would double check these things.

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To get a clearer picture than this table provides, I graphed the revenue below in six-month blocks for the last two years. Numbers for july 2017 have been extrapolated from the provided 30 April figures. 

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GO2 blame the downturn both on depressed market conditions and a preoccupation with getting ready for the IPO. It doesn’t seem like a great reflection of management that they could become distracted enough to lose half their revenue, but then again what do I know?

Valuation

I struggled for a long time to get an understanding of what I thought of the IPO price. GO2 is going to get a significant cash injection of 10 to 12 million if the IPO goes ahead, increasing the company’s net equity from just over half a million to around 10 million. This will have a significant effect on the company’s operations, which means it seems unfair to use their pre-IPO revenue to value the company.

One way to look at it, is to look at the value that has been assigned to the company before the cash injection of the IPO. As the company is being valued at 25.6 million with a 12 million dollar IPO, this means the pre-IPO company is being assigned a value of 25.6-12 = 13.6 million. For a company that made a profit after tax of 1.229 million after tax last financial year but a loss of $421,696 in the most recent reportable 12 month period, this doesn’t seem like a great deal. Even if we ignore the recent downturn and use the FY16 numbers, we get a P/E ratio of 13.6/1.229 = 11.065. By way of comparison, NAB shares are currently only trading marginally higher at a P/E ratio of 13.85, and a 41% dip in revenue for NAB would be almost unthinkable. You could argue that the potential upside for a company like GO2 is much higher, but I still think given the marked drop in performance, the valuation placed on GO2’s current operation is a little high.

While 95% of revenue so far has come from the recruitment business, 72% of money raised from the IPO after costs and ATO debt reduction are subtracted will be invested in thebuilding side of the business. GO2’s founder Billy Ferreira has a background in construction, and the prospectus argues that given they already have access to a workforce through their labour hire business, they are well placed to succeed in this area. It is this element of the prospectus that makes me second guess my opinion that the IPO price is too high. The company has a signed Memorandum’s of Understanding with property investors, and could potentially grow this side of the business very quickly.

Escrow

One of the good things about this IPO, is that basically all shares other than those bought in the IPO will be held in escrow. This means there is no short-term risk of pre-IPO investors offloading their shares and hurting the share price. If you are a short-term investor, this may be significant for you, but as the goal of this blog is always to identify long term opportunities I do not put too much weight on this point.

Summary

This is probably the IPO I have been most indecisive on. GO2 have managed to grow very quickly, and it looks like one of their main barriers to growth has been managing their working capital, a concern that should be eased thanks to IPO funding. On the other hand, I can’t help thinking that the seemingly distressed nature of the company means that investors should be given a slightly better price to invest. Somewhat reluctantly then, I will be giving this IPO a miss.


BigTinCan

Overview

As someone working in business development, I’m used to being called into a room by an executive or manager for a presentation of the new sales tool that is going to reduce our admin/allow us to accurately forecast sales/provide quality leads. 9 times out of 10 it’s a bit of a let down. The tools are rarely demonstrated in a live environment, the data is often inaccurate, and the supposed insights with “machine learning” seems to be nothing more complex than a couple of if arguments in an excel cell. It is for this reason that I was a little sceptical when picking up the prospectus for Bigtincan, a content platform for sales people on mobile devices.

The Bigtincan hub allows companies to selectively push sales content to the mobiles and tablets of sales staff. The idea is that instead of sales people having to hunt through different emails or folders for the presentation or collateral that they need, all content can be accessed from the one hub, with both offline and online capabilities. Bigtincan is seeking to raise 26 million for a fully diluted market capitalisation of 52.34 million once all the various options and are taken into account.

Financials

BigTinCan is currently burning through a lot of money. The total loss in 2016 was nearly 8 million, and based on their own forecast figures they will lose another 5.2 milllion in 2017. In any other sector, trying to argue a company with these sorts of losses is worth over 50 million dollars would be ridiculous but in the tech space this is pretty standard. Any successful tech company you can think of lost huge amounts of money during their growth phase, sometimes for a long time. To use the most recent example, Snapchat’s market capitalisation post listing was around 29 billion dollars, despite losing over 500 million dollars last year.

Taking a closer look at the numbers, the extent of the loses seem more strategic than involuntary. In FY 2016, BigTinCan spent just under 9.5 million on product development and marketing, or 135% of their total revenue, and they plan to spend another 12 million in FY 2017. They could have easily reduced their loses by cutting back in these areas, but as every other tech company knows, the real key to success when you are selling software is scale. It costs nearly the same amount of money to sell a product to a million-people compared to a thousand, and you only get to sell to a million people if you have a great product. The key metric for any young software company is growth, and here Bigtincan does not disappoint. Total revenue was 5.17 million in 2016 and grew 35% to 7.04 million in 2016, with projected revenues of 9.7 million for FY2017.

The one potential problem I found regarding Bigtincan’s financials is whether there is enough available cash to sustain the future losses the business might make. BigTinCan will have 14.421 million dollars cash immediately after the IPO. Given their current and projected loses, there is a reasonable risk that they may need to refinance before they get into the black, which needs to be taken into account when deciding if purchasing these shares make sense.

Product

As someone who is often on the road presenting to customers in my day job, I get the appeal of the Bigtincan Hub. In sales, you are constantly searching through folders and emails for the right presentation or tool that suits the customer you are dealing with, and when you have to do it all on an Ipad it becomes even harder. A centralised hub that can deal with a range of different file types, allow commentary and collaboration, and let managers push files to different users has definite appeal.

What’s more, from all the research I have done, it seems the BigtinCan Hub has delivered as well. Most reviews they have received are pretty positive, and they have received some impressive testimonials from large customers.

Perhaps the most impressive write-up comes from Bowery Capital, a venture capitalist firm that publishes an exhaustive summary of all software tools for start-up sales organizations every year. In their latest piece, Bigtincan receives the best rating out of the 13 other companies in the “content sharing space.”

The only reservation I have with the Bigtincan hub is that it is targeted to address a very specific need. What happens if in a couple of years’ time, Google, Apple or Microsoft release something that can do everything that Bigtincan can do and more? Given the natural advantages these larger companies have, it would probably be the end of Bigtincan. Of course, the more palatable outcome is one of these companies deciding they want to acquire Bigtincan by buying out shareholders at a healthy premium over market price, so there is upside to this possibility as well.

Past court cases

Buried in the financial section of the prospectus is a small note that there were two court cases that had an impact on the Statutory profit and loss for the last two years. As investing in a company with a troubled legal history is an alarming prospect, I decided to do some digging to see if I could find out more about this.
The first court case was a dispute with an early director called David Ramsay. From what I can understand from Bigtincan’s version of events, David Ramsey was given money to develop software for Bigtincan which he then used instead to develop an app for his own company. It appears Bigtincan won this case and Ramsey had to pay $300,000 in damages as a result. While Ramsey has tried to appeal this, it looks like his appeal to the high court was rejectedso it seems this chapter at least is closed.

The second case was with an American Software company called Artifex, which filled a lawsuit against Bigtincan over the use of technology that let users edit Microsoft office documents on their smart phone. Bigtincan reached a confidential settlement with Artifex over this matter, so we do not know the exact outcome, but as Bigtincan has continued to grow since then we can assume that whatever concessions were made did not have a major impact on the Bigtincan business.

I don’t really see any major cause for concern with either of these court cases. Given the potential money at stake, it seems inevitable that software companies get into squabbles about proprietary technology, and most successful tech companies have a story of some estranged director or other in their past, if only to give Aaron Sorkin and Ashton Kutcher material.

Price

Evaluating Bigtincan’s listing price is a more complex than for most companies, as I was unable to rely on a basic Price to Earnings ratio to get a feel for what would be reasonable. Instead, I decided to use price to revenue as an alternative as nearly all software companies list at a loss.

Based on these figures, the Bigtincan valuation seems pretty reasonable. Total revenue from the 2016 calendar year was 7.934 million vs a fully diluted market cap of 52.34 million, giving a Price to Revenue ration of 6.6. Linkedin’s initial listing was at a Price to Revenue ratio of 56 and Salesforce’s was around 11 (this was back in 2004 when internet companies were viewed with suspicion). Closer to home, Xero the New Zealand based accounting software company listed on the ASX in 2012 with a price to revenue ratio of 25.

In addition to comparing Bigtincan to other technology IPOs, I have modelled the next five years after 2017 to try and get an idea of where Bigtincan could end up, assigning different growth rates to their main revenue and expense areas.

Based on the assumptions I have made (and I accept that many will disagree with a lot of these) the company will have an EBITDA of 4.4 million in 2022. To me this is very compelling. I do not think I have been overly optimistic with the growth rates I have used, and you do not have to be Warren Buffett to know that a fast growing SaaS company earning 4.4 million dollars a year will be closer in market capitalisation to 150 million than 50 million.

Verdict

There are significant risks with this IPO. Bigtincan is still a young company operating in a competitive environment, and all it would take is a change in industry direction or a better product from a larger tech company to end their prospects completely. However, the potential upside if things go to plan is pretty substantial, and for me the price is low enough to justify getting involved.

Tianmei Beverage Group Corporation Limited

Overview

Tianmei Beverage Group Corporation Limited is a Chinese company based in Guangzhou with two arms to the business. The first is as a distributor and promoter of packaged food products, placing different suppliers’ goods at convenience stores and supermarkets. The second is a bottled water company that sells water produced by a Chinese water processing plant they have a contract with. They are using the Prospectus to raise 10 million dollars, selling 25% of the company in the process. The money will be used to buy the water bottling plant they currently source their water from and to start importing Australian food products to China and promoting it at their contracted stores.

Valuation

From a pure valuation perspective, Tianmei China is a fantastic deal. According to the Prospectus they made a profit of over 4.3 million dollars in the first half of 2016, and the IPO values the company at 34 million, meaning the Price to Earnings (P/E) ratio is well under five if you annualised those earnings. On top of this, both arms of the business are in massive growth areas: The bottled water market in China has seen double digit annual growth due to pollution concerns and the growth in demand for Australian food and health products in China has been astronomical. You can see this in the impressive premiums that the market places on any Australian company that is exposed to Chinese consumers: Bellamy’s was trading at a P/E of 40 a little while ago, and even after sacking their CEO and concerns about their accounting, the share price has only shrunk to a P/E of 10. The A2 Milk company is trading at a massive P/E ratio of 68 and Blackmores is trading at a P/E of 20 largely thanks to growth potential in China.

It’s basically impossible to come up with a valuation that isn’t higher than Tianmei’s listing price using a discounted cash flow analysis. Even if you put a ridiculously high discount rate of 20% and assume a conservative growth rate of 6% for the next 8 years before levelling off to 1%, you still end up with a company value of over $40 million. The way I see it then, if you are evaluating this stock, investigating the exact growth rate of the bottled water market or Chinese supermarket conditions is a waste of time, as whatever you come up with is going to show the stock is a good buy. Instead, the simple question for any potential investor is can we trust this company? As a relatively unknown company operating in a country that doesn’t exactly have a spotless reputation for good corporate governance, it is hard not to be suspicious. The story they are selling through their accounts is one that anyone would want to invest in. The question is, is this story true?

Personnel

According to John Hempton, a role model of mine and someone who inspired me to start this blog, the best way to find out if a company is dodgy is to look at the history of the key management personnel. Hempton’s hedge fund Bronte Capital does just that, following people who they believe have been involved with companies that were fraudulent for potential targets to short sell.


Unfortunately, it’s hard to find nearly any English information on most of the key people in the company and I don’t speak Mandarin, so the only person I can really look into is the chairman, an Australian guy called Tony Sherlock. Tony Sherlock has been around for a long time in the M & A and finance world. He was the chairman of Australian Wool Corporation, worked at PWC in the risk division for ten years and co-founded Bennelong capital, a boutique corporate advisory firm. Judging by his Linkedin profile he looks like he is in his late sixties at the youngest, as he finished a Bachelor of Economics in 1969. Would a guy nearing the end of a successful career working risk his reputation promoting a company that wasn’t above board? It seems unlikely. He’s built up a solid reputation for himself over the years and it would be strange for him to risk it that late in his career. Of course nothing is certain, and it’s possible he’s got some secret gambling condition that makes him desperate for cash or simply doesn’t know that the company is fraudulent, but overall it seems like a positive sign that he is the Chairman.

History

One of the initial things that made me suspicious of Tianmei is its age, as according to the prospectus the company only started in 2013. Trying to unpick the exact history of Tianmei China is a painstaking undertaking, as there are a ridiculous amount of holding companies that have been created along with business name changes. As far as I can understand it though, it looks like the Tianmei business was created in 2013 by Guangdong Gewang, a Guangzhou based business started in 2010 that sells supplements of selenium, a chemical element that Guangdong Gewang claim is vital to human health. While I was initially suspicious of a company selling a supplement that I’d never heard of, after doing some research it actually looks legitimate. Although selenium deficiency is very rare in the West, apparently it is a problem in some parts of China due to crops being grown in selenium deficient soil. During a restructure in 2015 Guangdong Gewang separated the selenium supplement business from the water and FMCG businesses, and as a result created Tianmei. Interestingly enough, Guangdong Gewang is applying for admission to the Nasdaq for their own IPO currently. Guangdong Gewang still hold 22.5% of Tianmei through Biotechnlogy Holding Ltd, a company incorporated in the British Virgin Islands. (Both these companies seem to have a real love of the British Virgin Islands, Tianmei’s ownership also is funnelled through a British Virgin Islands company.) While the history isn’t exactly stable, there are no obvious red flags I could find to turn me off investing in Tianmei.

Ownership

One of the things I like about this IPO is that the initial listing at least isn’t just a way for the owners to cash in. As a jaded, though still cautious believer in the theoretical benefits of capitalism, it’s nice to see an IPO doing what a stock market is meant to do; allocating capital to a business that wants to grow.
A strange thing about the ownership structure is that the equal largest shareholder with 22.5% ownership is a woman called Han Xu, an Executive Director who from her photo looks to be in her mid-twenties. How does someone who finished their bachelor’s degree in 2011 and a Masters of International Finance in 2013, afford 7.2 million dollars’ worth of shares in the company? Perhaps a more basic question is how can someone who left university three years ago and never studied law end up as the ‘legal expert’ and executive director of a soon to be publicly listed entity, when fully qualified lawyers of her age are still working 70 hour weeks as Junior Associates? The most obvious explanation would be she is the daughter of someone important. After doing some digging around I found that one of the co-founders of the original Selenium supplement company was a guy called Wei Xu. While I don’t know how common the Xu last name is in China, it seems reasonable to assume that they could be related.
Is this potential Nepotism enough to be a concern? I don’t really think so. While she might not be the most qualified person for the job, If anything it’s reassuring that the co-founders of the company are maintaining their holdings. The third largest shareholder of Tianmei is a guy called Mengdi Zhang, whose father Shili Zhang was another initial co-founder of the Selenium business according to Guangdong Gewang’s filings for their Nasdaq IPO.

Verdict

Overall I think this looks to be a pretty good IPO. While of course there are always risks with investing in a company this young and especially one operating in a foreign country, the price is low enough to make it worthwhile. It seems the listing is about both raising capital as well as creating a link with Australia so they can start importing Australian foods, which perhaps explains why they have listed at such a low price; the benefits for them isn’t just the capital they intend to raise. If the market gains confidence that Tianmei is legitimate, the company could well double its market capitalization in the next 12 months and I will definitely be along for the ride. 


Ardrea Resources


Overview

It’s hard not to be charmed by the prospectus of Ardea resources. Something about the long term consultant getting his first shot at a Managing Director role, the all or nothing plan of investing all money raised into exploratory digging in the next few years and the hopeful and earnest pictures of gold nuggets, abandoned mine sites and old letters makes it feel like something out of a Poldark episode.
The whole project seems to be a creative way Heron Resources management have dreamt up to finance exploration of some of their existing tenements they think look promising without annoying their shareholders who would rather they focused on their existing mine. Ardrea resources will be given the tenements and in exchange Heron Resource shareholders will be given over half of the shares in Ardrea Resources. Ardrea will then raise 6 million dollars through the IPO selling off the other shares
While it's an elegant solution, it is a rather expensive way of doing things. The IPO will apparently cost $900,000, or 15% of the money raised and that’s before the additional salaries of board members and directors that will need to be paid each year are factored in. The cynic in me thinks that if those gold nugget pictures that are talked about so excitedly in the prospectus where compelling enough Heron Resources management would have convinced shareholders to let the company do the drilling themselves, though perhaps that's unfair.

Analysis

The payoff tree for Ardrea is pretty simple: The two year exploration will either turn up something that warrants a mine, or the company will have burnt through nearly all its money on the exploration drilling and the shares will be close to worthless. This means that in order to evaluate this deal we need to decide on two things: how much the share price will be if the drilling turns up something, and the likelihood of that happening.
To try and quantify what the Ardrea share price would be if the drilling work uncovers a feasible mine site we can use the share price of Heron Resources itself. As it stands currently, Heron Resources has had the Woodlawn mine approved as economically feasible with works due to start early next year. With this information supposedly factored into the share price, the company has a market cap of just under 52 million dollars. If you subtract the net cash the mine has of around 24 million dollars, it means the market value of the Heron Resources mining site plus any other remaining tenements is around 28 million dollars. The market cap on listing of Ardrea Resources will be 14.3 million if fully subscribed, meaning that if Ardrea was to find a mine site that a feasibility report showed was worth developing, the market cap and share price doubling to 28.6 million and 40 cents respectively may be a reasonable assumption. I know this may be overly simplistic, but there seem to be so many unknowns in regards to what could be found that trying to be more specific seems futile.
Trying to assign a percentage to the drilling finding anything is harder still. I’m not going to even pretend that phrases like “’wallaby style magnetite epidote alteration’’ mean anything to me, so the Prospectus isn’t really much help in this regard. There are a couple of things though that make me feel this percentage isn’t that great. Firstly, these tenements are not exactly new, with the Prospectus mentioning they have been looked at by previous miner’s numerous times, which can hardly be a good sign. Secondly, I keep coming back to the idea that if this really was a great opportunity, there must be easier ways to raise 6 million than through an IPO. Surely there would be private investors who would jump at the chance to put up money if they thought this opportunity was worthwhile. With all this in mind, I find it hard to be confident that the drilling prospects are above 50%.
With that low of a chance of a payoff, the deal doesn't seem that enticing.
There’s one more reason I’m reluctant to invest in this Prospectus. One of the conditions of the prospectus is that Heron Resources shareholders get priority if the IPO is oversubscribed. This means that for the average non-Heron Resources holding investor you are in a catch 22 situation: If the Heron Resources shareholders know this is a good deal, all or most of the shares will be snapped up before reaching the general public, and you will be left out. If, on the other hand, Heron Resources Shareholders think that this drilling project isn’t worth it, your bid will probably be filled.

Verdict

This one is a pass for me. If I had shares in Heron Resources it might make more sense, but as it stands there are too many potential downsides to make the potential payoff worthwhile.


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