It only has to go up a penny and I've doubled my money." The penny share arena is the Pound Shop of the stock exchange. The difference is the quality is more often better in the Pound Shop
Some would put shares priced up to 50p into the penny share basket, but there are plenty of sound companies that have been hammered down to that level recently so 10p is my own threshold.
April's What Not To Buy selection combines a sub-penny purchase price, serial disappointment and an uphill fight against free downloads.
The Pound Shop's nightmare -- the Zero Pence shop
Formjet (LSE:FMJ) is a Windows software distributor. Its mainstay, Ability Office, is a comprehensive and very good rival to Microsoft Office. The package costs only £28 to £35 whereas Microsoft will charge you £90 to £510 for more or less the same thing. Recipients of netbooks from Carphone Warehouse will find Ability Office pre-installed on their new machines.
How can Formjet go wrong? Well, as Personal Computer World magazine says "the big problem for Ability is that OpenOffice does many tasks much better and it's free." It's as if the owner of a Pound Shop looked out one morning and his eyes alighted on a Zero Pence shop opening across the street.
OK, you have to download OpenOffice or buy a PC magazine that has it on the cover disk -- many people will play safe, believing that software sold in a proper shop for real money must always be better than a freebie.
Turnover? Turn over
In the four and a half years since Formjet gained the worldwide rights to sell Ability Office it has done nothing but lost money. In fairness, start-ups are usually unprofitable until sales grow to a critical mass. The damning figure for Formjet is that turnover has declined in the three years to 2007 (2008 figures are not ready yet).
At the turn of the year one of Formjet's two brokers, Old Park Lane Capital, resigned. The broker had helped Formjet raise cash last year to fund an agreed takeover. Within a month of issuing new shares at 0.75p the board abandoned the acquisition "following the completion of due diligence." I guess they found some damp in the basement when they decided to have a proper look.
We couldn't shift the dodgy gear
The last straw for Old Park Lane was Formjet confessing that it had bought a stock of software from the bid target and was writing it off with a £340,000 charge because of "concerns over the legitimacy of some of the stock acquired." Formjet hasn't said what the software is or which company it had agreed to buy.
All the cash raised last year has gone, though net debt is currently a modest £75,000.
If you are still inclined to give this distributor the benefit of the doubt, consider that the license to Ability Office expires in September next year. The creators of the suite may look for a safer pair of hands.
The WNTB table is showing a loss of 40% (excluding Northern Rock and Sibir) against 39% in the FTSE All Share Index.
Buy date | Company | Cost | Now | Gain/ |
| Alexander David Securities (LSE:ADS) * | 2.5 | 0.63 | (75) | |
April 2007 | British Airways (LSE:BAY) | 507 | 167.6 | (67) |
May 2007 | Patientline (LSE:PTL) | 4 | 0 | (100) |
June 2007 | Coffee Republic (LSE:CFE) | 202.2** | 18.5 | (91) |
July 2007 | Manganese Bronze (LSE:MNGS) | 864 | 88.5 | (90) |
August 2007 | Victoria Oil & Gas (LSE:VOG) | 37.9 | 4.75 | (87) |
November 2007 | Northern Rock | 150 | Delisted + | (??) |
December 2007 | iShares China 25 (LSE:FXC) | 7765 | 6223 | (20) |
February 2008 | Netstore (LSE:NES) | 23.7 | 31.5 | 33 |
March 2008 | London Town (LSE:LTW) | 170 | 57.5 | (66) |
May 2008 | Playtech (LSE:PTEC) | 543 | 445.5 | (18) |
June 2008 | Coms (LSE:COMS) | 55 ** | 8 | (85) |
July 2008 | Avis Europe (LSE:AVE) | 13.49 | 16.5 | 22 |
October 2008 | Marshalls (LSE:MSLH) | 97.25 | 107 | 10 |
November 2008 | Invensys (LSE:ISYS) | 157.2 | 171.4 | 9 |
January | Sibir Energy [LSE:SBE] | 135 | Suspended ++ | (??) |
February | Carpetright (LSE:CPR) | 451 | 557 | 24 |
April | Formjet (LSE:FMJ) | 0.33 |
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* Reverse takeover of Griffin Group
** Adjusted for consolidation
+ The Government will announce shareholder compensation (if any) for the nationalised Northern Rock
++ Suspended pending investigation of financial irregularity
Warning: this is not a portfolio of companies to short sell. Luck, speculation and my being plain wrong may send values up sharply.
Alun has short positions in Manganese Bronze, Carpetright, Marshalls & Invensys
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