Nobody is ever going to get rich by buying into IPOs

In Wednesday's blog, I wrote the following:-

 "I would argue that nobody is ever going to get rich by buying into IPOs"

Today a company called Bagir Group, which recently listed on London's Aim market, provided the perfect illustration as to why I avoid IPO's like the plague.

Bagir Group has barely been listed for more than a year. On the first day of dealings the share price stood at over 60p, but quickly lost value. After the release of today's interim results the share price has plunged even further, and currently languishes at 3.75p.

So what exactly has caused today's plunge? In short, losses of over $3m coupled with this trading statement:-

"The Company has made good progress in developing revenues to replace its previous largest customer during the six months to 30 June 2015. However, as noted above, the Company expects the second half of the year to be more difficult than the first half due to competitive pressures and the deferral of sales planned for 2015 into 2016. As a result, the Company expects trading for the second half of the current financial year to be significantly worse than the first half. "

Now using ADVFN's figures the group has a current market cap. of £1.9m. The company describes itself as a designer, creator and provider of innovative formalwear tailoring with it's Head Office based in Israel.

Last reported revenues came in at £97.0m and so ultimately with a £1.9m market cap. it may turn out to be bargain of the century from these levels, and some investors may wish to stick it on their monitors and carry out some further investigation into the company's fundamentals.

Personally, if the recent listing wasn't enough to put me off in the first place then the fact that it's Head Office is overseas certainly would.

I love seeking out and buying interesting micro-cap companies listed on Aim that look good value, but overseas based recent IPO's I wouldn't touch with a barge pole.

Actually, if you had shorted each and every foreign based IPO that listed on Aim you would have made an absolute fortune.

As an aside I often hear investors heavily criticising the Aim market almost as if it's rotten to the core. Of course, it's no such thing. Like any other market there are good, bad and indifferent companies, and if you look hard enough you can find some absolute gems. However, you do have to wonder how on earth so much rubbish appears to have made it onto the market?

Parsortix system impressing the medical world

I have written several blogs in the past about my investment in a company called Angle. This was a speculative investment that I made in 2012 when the share price had fallen back to around 26p-27p from memory. Certainly, this investment is paying off so far with the current share price around 76p. I am hopeful that the share price will continue to rise sharply from this point, particularly after today's news:-

http://uk.advfn.com/news/UKREG/2015/article/68629375

To summarise, this is a further example of  the  Parsortix system's far superior performance to the existing competition in providing a liquid biopsy for personalised medicine in prostate cancer.

Andrew Newland says, "This is the first peer-reviewed publication in a scientific journal in relation to the clinical use of ANGLE's Parsortix system. It adds to the growing body of published evidence of the system's performance as a liquid biopsy in a range of cancers including ovarian, prostate and breast cancers."

As the results of each independent study are released, I am getting more and more confident about my investment here. What particularly strikes me is the excitement from the medical community who specialise in the treatment of a number of cancers.

These comments from a news release in April this year clearly demonstrate the medical community's enthusiasm:-

http://uk.advfn.com/news/UKREG/2015/article/66496043

"Dr Eva Obermayr, Principal Investigator at the Medical University of Vienna, commented:

"The Parsortix technology contributes to the unprecedented specificity and sensitivity of the overall approach, by providing a high purity CTC sample. Parsortix is a label-free technology, and as such may become the gold standard for ovarian cancer diagnosis. By combining the Parsortix technology with qPCR analysis, we achieved an unprecedented high detection rate of cancer, even in early stage patients, where conventional diagnostic methods failed."

Professor Robert Zeillinger, Head of the Molecular Oncology Group at the Medical University of Vienna, commented:

 "It is now evident that the Parsortix system has wide application not just in ovarian cancer but in breast cancer and other gynaecological cancers as well. We are delighted to be working with ANGLE to bring this new capability to our patients as soon as possible."

A more extensive study into Parsortix's system is about to get underway with Ovarian cancer patients, and should the results be repeated then it opens up the clinical market in ovarian cancer with sales potential for the Parsortix system in Europe and the United States in excess of £300 million per annum. The whole market opportunity for all cancers is estimated to be worth in excess of £8bn.

Angle is currently valued at around £45m. Of course, it is almost impossible to value the company at this stage, but with luck and continued good progress then the company is potentially worth many multiples of this value if it can achieve both research and clinical sales in the future.

Funding is in place for the medium term.

My feeling is that given the increasingly positive results coming through from key opinion leaders, Angle will be snapped up by a predator in the not too distant future at a significant premium to it's current market cap.

I continue to hold the shares with increasing confidence.

Eckoh's of my own investing strategy

In my very earliest investing days I remember receiving a circular from a company whose name escapes me now. However, I do remember that in the circular there was a raft of information about micro-caps which were listed or about to be listed on the LSE. I don't remember too many of the companies that were mentioned, apart from one called Eckoh. I tended to concentrate my efforts on medium and large cap. shares at that time, and certainly never entertained purchasing any of Eckoh's shares. Times have changed of course, and now I like to focus my attention on the micro-cap sector of the market. Yes, it can be perceived as more risky and there will be inevitable disappointments, but the rewards can be phenomenal. With a little bit of luck and judgement  the winners will dwarf your losers, and even one or two multi-baggers will enable you too easily outstrip the indices year in and year out even if the others are duds. Anyway, I digress.

Eckoh plc caught my attention today because they have just released a positive sounding trading statement.

http://uk.advfn.com/news/UKREG/2015/article/68611575

The key summary line is:- "We remain confident that the high levels of growth seen in previous years will continue through the new financial year and beyond with current trading remaining in line with market expectations."

Today I am not looking at the current investment case for Eckoh, but the parallels between it's fundamentals and the type of companies I try to identify.

Firstly, a look at Eckoh's chart will tell you that the company hit the market towards the end of the 90s on a far too heady valuation. This is far too often the case, and I would argue that nobody is ever going to get rich by buying into IPOs. By the early 2000s the share price has plummeted, and then went nowhere for several years. However, look at 2009 onwards. A multi-bagger. Timing is crucial. These are the situations that I often look for. Interesting businesses where investors have lost patience, but where the company looks like it is about to turn the corner.

What else though? Well for me, sufficient cash on the balance sheet and a company that is capable of producing good cash generation. Little or no debt. High gross margins. Securing contracts with blue-chip and/or reputable companies/household names. A bullish outlook statement.

Now take a peek at Eckoh's final results from 31 March 2010.

http://uk.advfn.com/news/UKREG/2010/article/43300791

The share price chart from this point tells it's own story.

Will the story continue from here? Certainly the trading statement is encouraging. I haven't re-examined the most recent fundamentals so I've no idea if the current valuation is cheap, expensive or about right? I'll leave that to your own further research, but investors who bought shares at Eckoh's lows will have done very well indeed.