An unusual seminar this month as ShareSoc unveiled two companies, 1PM and ImmuPharma, alongside a presentation from a new investor research service and a pair of ShareSoc talks on areas where the organisation is hoping to influence policy.
As a private investor it often feels, to me, that the playing field is far from level; institutional investors benefit from high-grade research, privileged access to share placings and the chance to invest with someone else's money. Research Tree is a very recently launched service (5 weeks now) that seeks to redress at least one of these problems by providing real-time access to broker notes and other investment research. For a moderate monthly fee (£40 or around the cost of one decent trade) the CEO, Rob Mundy, explained how research covering most of the FTSE100 and more than half of the FTSE250 and AIM could be accessed by private investors.
Interestingly Rob didn't give us the hard sell but there is a caveat to this service beyond the cost; you have to be what's called an Elective Professional. In practice this means that you declare yourself to meet two out of these three criteria: you have €500K of investable funds; you work or have worked in the financial sector; you trade more than 10 times in a quarter and have done for 4 quarters. As a regulated entity Research Tree must verify a sample of these claims (1 in 20 perhaps) but there's nothing to stop you signing up for a 2-day free trial. The only problem is that you have to provide credit card details to start the trial and it's unclear if the fee is taken immediately.
Nevertheless in the interests of research I've signed up and I have to admit that the site is pretty slick. It took perhaps 5 minutes to enter all of my holdings and instantly I have 131 research reports (from 19 providers) at my fingertips (out of a total of 8000) and the ones that I've looked at are pretty good. Obviously the research houses aren't charities and the attraction for them is a scalable royalty being paid by Research Tree based on the number of views - which means that readers can reward quality content as well as rate individual reports (out of 5 stars). So I'm pleasantly surprised by the quality of this service already and it's clear that Rob, and his team, have ambitious plans for the future (and they'll be around for at least a year having just raised £500K from investors).
NB If you do decide to sign up for this service the discount code 'sharesoc' will give you 10% off the list price (with a further discount if you pay for a year up front).
Next up came Ian Smith and lease/loan finance company 1PM (from the idea of One Payment Monthly) covering business equipment for UK SMEs. Typically they provide finance at the smaller end of the market (£1-50K over a period of 3-60 months) to high-street businesses such as garages and restaurants. This is a profitable area with double-digit interest rates being the norm and above 20% being achieved on shorter terms. Obviously this level of return implies a decent level of risk but 1PM don't do pay-day lending or sub-prime (any more at least) and Ian was keen to emphasise their focus on credit control.
So why has the share price been in the doldrums for the last two years despite a pair of what seem to be excellent acquisitions in 2015/16 (of Academy Leasing and Bradgate)? Part of the reason may be a near-doubling in share count over the last five years but access to equity funds is one reason for the company being listed - it diversifies away from being reliant on bank and HNWI funding. At the same time these new companies allow 1PM to broke on business they don't want to provide (which leads to a commission) and gives them access to higher-margin revenue. So it is a bit of a quandary and Ian was none the wiser.
It is possible that bad memories of 1PM stumbling over sub-prime lending back in 2010 still linger but that was a fair while ago and this line of business no longer exists. In fact the company seems to have an unusually low level of bad debt (below 1%) compared to similar lenders and Ian spoke at some length on how they follow up on any missed payments immediately and work with customers before even getting close to writing-off the debt. Beyond this operational detail the board also have a strategic plan for getting the company to £100M (i.e. tripling in size) in the medium term. I guess the question is whether they can scale up their funding sufficiently and fight off competition from bigger lenders?
ImmuPharma is similarly dealing with competition from heavyweights in its sector but in this case it's big-pharma and their even bigger research budgets. That said, as Chairman Tim McCarthy explained in some detail, ImmuPharma has an edge in that its leading drug candidate, Lupuzor, is based on novel research and is fully patent-protected. Even better, and here is the investment thesis, this drug is starting in Phase III trials prior to the company (hopefully) applying for marketing approval from the regulatory bodies (i.e. the FDA). As a mark of seriousness the FDA have given Lupuzor both Fast Track and Special Protocol Assessment status.
The reason for all of this positive attention is that Lupuzor treats the chronic autoimmune disease Lupus and only one other drug (Benlysta) is licensed for use - and it's both expensive and has serious side effects. In contrast Lupuzor has no side-effects, apparently, and is cheap and easy to manufacture; which implies that high margins are achievable if enough of the 1.5 million sufferers in the Western World sign up to a life-long course of treatment. Usefully the company has also very recently raised £8.4M through a placing and this is enough working capital to fund the company out to 2018 - by which time the results of the Phase III trial will be in the bag.
So what's the bear case with ImmuPharma? Well the company can't apply to the FDA for approval until 2018 and this process is not a quick one - time in which a competitor drug or some other problem could emerge. Even with approval the company isn't in a position to distribute Lupuzor globally and so a big-pharma license deal is likely; unless they just decide to buy ImmuPharma outright. Given strong institutional support in the recent placing, as well as from development partner Simbec-Orion, I think that this is seen to be a likely and profitable outcome. However I would have liked to see some of the directors with very small holdings put more money into the placing, as well, since that would be a vote of confidence from people with real inside knowledge. Still who really knows the future - Lupuzor could be a $1bn block-buster yet!
Outrageous pay-packets, bonus schemes and other director enrichment mechanisms have long been a focus of ShareSoc but with the arrival of Cliff Weight (a former remuneration consultant) further light is being cast into this murky area. Already this attention has started to pay a dividend with BP being in the dog-house as shareholders rejected Bob Dudley's astonishing deal. As a result Cliff spoke at some length on the background to his package and how it's driving an even more obese final-salary pension scheme.
For full ShareSoc members the remuneration forum on the society's website is a good place to contribute and keep up to date with the latest corporate shenanigans. Right now a guide to evaluating corporate pay schemes is being finalised (so any feedback is welcome) and the plan is to score an increasingly wide range of companies using this guide. This makes a lot of sense to me as there's no clear link between directors being paid a huge wedge and share-price out-performance; in fact, with a company like Vislink, it seems as though the idea of grabbing a pot of gold distracts the management team from running the business and it all falls apart!
In closing Roger Lawson spoke on how AIM might be improved, as a market for private investors, and the specific suggestions which ShareSoc has pulled together so far. By way of context Roger pulled up a slide demonstrating how AIM, as a whole, has gone nowhere in twenty years. In fact over that time investors would have lost money in 72% of the shares being offered with 30% leading to a 95% loss of investment or more. The problem here isn't just that it's hard to find a good company amongst the dross but that good companies are being put off listing here in the first place - such is the reputation of AIM!
Broadly speaking these recommendations are aimed at improving corporate governance which makes sense given the notorious "light touch" approach that the LSE currently encourages. For example splitting the role of Nomad and Corporate Broker (often combined) and ensuring that Nomads have a legal responsibility to shareholders would help to ensure that they protect the actual owners of the company. Similarly directors should be required to have specific knowledge of the Companies Act since it's quite common to see directors continuing to treat firms as if they were still privately owned - not so great post-IPO. I imagine that the full suite of ideas will be made public in due course but in the meantime full members can access Roger's presentation on the ShareSoc seminar forum.
Disclaimer: the author does not hold shares in any of the companies mentioned here.