OptiBiotix (OPTI) - I'll continue to avoid

I haven't written a blog post for a little while now but thought I'd revisit a company that I've suggested was grossly overvalued 4 years ago. Has anything changed my mind in the intervening period or was I correct in my initial assessment?

I will let readers be the judge, but in my own opinion the past 4 years has borne out my initial summation and I'd still give this company a wide berth. It's still hugely overvalued. The company is a little outfit called OptiBiotix. Here was my last blog post in October 2018:-

http://michae1mouse.blogspot.com/2018/10/theres-no-nonsense-like-bulletin-board.html

When I initiated a thread on ADVFN (16 March 2016) the share price was around the 73p mark. It is currently down 30% from that date following today's trading update:-

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/OPTI/14387837.html

https://uk.advfn.com/cmn/fbb/thread.php3?id=35291865

Let's look at today's update. Firstly, revenue for the full year is a paltry £808,000 which is just £266,386 better than last year (£541,614) a company with a ludicrous valuation of around £43m. Of course there is no mention of losses incurred during the year as is always the case with such companies.

If you read the trading update in full and take time to digest the information then you'll notice several red flags. I'll take them in turn.

1) There is great play on other income of £617,000 during the year from the sale of shares in a holding in their spin off company called SkinBiotherapeutics (SBTX) (Equally overvalued incidentally!!). Without this then cash in the bank at the end of November would have virtually been zero given that they report they had £687,699 on the balance sheet. Worryingly they appear to be relying on more share sales of SBTX to raise cash. They say :- "We have the option to further reduce our holding (circa £7m) in SkinBioTherapeutics plc if growth capital is required. " Really? A buyer already lined up? What if nobody is interested? Do they realise share prices go down? In fact SBTX is down a further 6% today.

2) They also say this:-

 "The 12 months to 30 November 2019 have seen the transition of the Company from a research and development business to a company building commercial revenues" . 

If you check back then you'll see they've been using this same line for three years now. It appears to be a very long and very slow process.

3) "In line with previous years, the majority of income was generated in the second half of the year (H1 2019: £148,818). We expect this trend to continue in 2020"

So that'll be "sod all" revenues in the first half of 2020 then?

4) I notice that the aim for profitability has now been set for the end of 2020 with the caveat of no guarantees. It would be helpful to know what losses were incurred this year and then perhaps we can come to our own conclusions about the likelihood of profitability in 2020. My guess is not very likely.

5) Finally a ridiculous idea of exploring a listing on the NASDAQ in the same breath as saying they are trying to manage costs. Laughable. Anyone would think the CEO is trying to pump up the share price on crap results? Surely not?

The rest of the trading statement is the same old verbose puff and bluster that has been spouted out numerous times before.

If OptiBiotix was valued at around £7m-£10m then it may be worth re-examining as a speculative punt but at over £40m it's hugely overvalued.

As ever, AIMHO.

Stilo de-lists.

Following on from a blog post I penned back in April, Stilo International will de-list from the AIM market tomorrow (Tuesday 8th October) :-

This is April's blog post giving my thoughts at that time:-

http://michae1mouse.blogspot.com/2019/04/a-de-listing-bring-it-on.html

There's not a huge amount to add other than I've retained my entire holding in Stilo International and remain cautiously optimistic for the future.

The interims were released with a notice of their intention to de-list, and as anticipated the outlook for this year is lacklustre at best. There was a tender offer of 1p to purchase shares from private shareholders, but it appears that almost all private shareholders (like myself) have passed on the tender offer and are happy to hold their shares in the private company. Indeed it was pretty much a no-brainer since if you'd wished to sell out some or all of your holding since the de-listing announcement it's been possible to sell shares significantly above 1p. It should be noted that the company did buyback over 15,000,000 shares from Giltspur and Brewin nominees at 1p to reduce the share capital to around 98,000,000. It also worth mentioning that C.Lee has been acquiring shares and now owns over 10% of the company.

I am very happy that the company has de-listed since it doesn't need to raise funds from the market with a very solid debt free balance sheet and a cash balance (last reported) of over a £1m. This is against a market cap. that had fallen to around the company's cash level. The saving over £120,000 per annum on listing costs will be very significant for the company. In fact £120,000 represents around a 0.12p possible dividend. If you were lucky enough to get shares for around 1p then that's a 12% return. I expect dividend payments to return very soon following their de-listing.

From the General Meeting circular issued in August
(http://www.stilo.com/wp-content/uploads/2019/08/General-Meeting-Circular-23-August-2019.pdf), we also had this included in their reasons to de-list:-

"the Directors believe that the Company’s AIM-quoted status – in which the Company has a tangible share price and hence a perceived “value” - has presented a significant barrier, in practice, in advancing M&A discussions with potential acquisition candidates. Additionally, the Board’s experience is that many privately owned companies are not attracted by the prospect of acquiring, or becoming part of, a publicly traded company. The Directors believe that if the Company was off the market, it might be possible to command a much higher company valuation than that which is currently reflected in our share price."

My guess is that the company will return to profits and cash generation in the not too distant future and then sell the company at a hefty premium to its listed market cap.

Anyway, I'll keep you posted, and it'll be interesting for me since it's the first time I'll have held shares in a private limited company.

Dividends can keep you happy whilst you patiently wait for capital returns

It's a little while since I last produced a blog post so I thought I'd write a short article about Aeorema Communications (AEO). I've mentioned them several times in the past. It's basically a great value micro-cap that's returned to encouraging growth. The market is currently overlooking this little gem, although it does appear that micro-caps are, in general, currently out of fashion with Mr. Market. It'll all change in time. It always does.

From 2014-2018 revenues at AEO fluctuated in the £4m-£5m range, although pre-tax profits were declining. It's worth noting that the company did remain profitable during this period and continued paying dividends.

However, AEO's current management appear to have now got the company back on a growth trajectory. After reporting a half-year loss, chiefly due to the lag between making two senior appointments to their team and the inherent recruitment costs and time to make an impact, and the usual second half weighting they've now rapidly turned the half year loss into a full year profit which has beaten market expectations at over £350,000. Revenue took a big leap forward to £6.7m which is a quantum leap from the 2014-2018 figures. It appears that the new appointments are already beginning to prove their worth.

Their cash position is strong and it's their intention to continue with dividend payments. In 2018 the dividend was 0.75p so I'd expect a further increase this year. The current p/e ratio is around 7, and I'd guess the cash on the balance sheet is at least half the current market cap. of £2.4m.

Bizarrely, after the ahead statement yesterday and an initial 20% rise in the share price, the shares have now fallen back to where they started on Thursday.

From a personal perspective whilst it can be frustrating waiting for the market to recognise AEO's true worth, and in my view the company is stupidly cheap, I've received around 25% of my money back in dividends already with more to come following the release of their full year results.

Finally, a Mr Jonathan Hicking appears a regular and keen buyer and has today upped his stake further to 13%.