Biotechnology company Abcam (ABC) is one of the largest AIM listed companies (market cap £2.7 billion). Yesterday (20/7/2022) they included in a trading update a statement that they are planning to cancel the admission of their shares on AIM. They previously moved to list their shares also on Nasdaq so they are currently dual-listed. This means they have already lost the IHT tax advantage of most AIM shares which qualify for Business Property Relief.
The move to Nasdaq was no doubt made in the anticipation that the valuation of the company might be higher and to attract more US investors. It did not obviously have an impact. They now say the latest move is to improve liquidity. But it will prove a great inconvenience to UK investors.
The board of the company does not seem to realise that there are good reasons why Abcam does not look attractive to investors. The financial profile of the company has been declining in recent years. Reported EPS has declined and ROCE is now down to 3%. Only adjusted EPS has held up due to adjustments which comprise everything the company wants to ignore such as “systems and process improvement costs” and “integration and reorganisation costs”.
How will removing one listing venue help liquidity? I do not understand. If the company proceeds with the delisting from AIM I will be selling my shares and I have already been reducing my holding after losing confidence in the current Chairman.
We should get a vote on this proposal so I hope shareholders will vote it down.
Another event yesterday was a Results Webinar for flooring manufacturer and distributor Victoria (VCP). Geoff Wilding took over as Executive Chairman of this company ten years ago after a revolution and turned around what was a moribund business into a great success. After a number of acquisitions the company claims that £1 invested in VCP on the day Geoff was appointed Chairman would today be worth £24.57 (with dividends reinvested).
After backing Geoff in his appointment I bought a few shares but I did not do as well as that claim might suggest because I never held a large number of shares and am now down to a nominal number. I became concerned about the high debt (net debt now £406 million ignoring leases which actually rose on these latest numbers which were otherwise good – revenue up 54% and adjusted eps up 38%). Understanding the business after several acquisitions is not easy and the preference shares issued to Koch complicate matters although operationally it seems to be well managed. The webinar helped to explain matters and there was useful discussion on the results by Paul Scott et al on Stockopedia yesterday.
Numerous acquisitions always lead to difficulty in understanding the true financial position of a company. I am currently reading the book “Engines that move markets” by Alasdair Nairn and he is particularly good on the history of internet companies. He has this to say about AOL: “AOL’s chequered financial history is readily apparent. In the early days, analysing the accounts required constant to-ing and fro-ing between different years in an effort to separate the operating results from other items such as acquisitions/ disposals, financing and changes to accounting treatment. In many ways analysing AOL was the same as trying to analyse the acquisitive conglomerates of the 1970s and 1980s. The business never appeared to be in a ‘steady state’, making it difficult to estimate future operating margins and rates of subscriber growth. Some analysts argued that the changing nature of the business made this analysis fruitless, but such an argument was spurious. For any investor buying something, the more information that can be gained about the ‘substance’ of the something that is being bought the better. Sadly, for Time Warner, this did not appear to be a principle that was followed”.
The merger of AOL and Time Warner subsequently turned out to be one the biggest mistakes ever made in US corporate history.
Numerous acquisitions certainly complicate any investors understanding of a business and in addition acquisitions can be risky. On some measures Victoria currently looks cheap but you need to have confidence that Geoff Wilding will continue to manage the risks well.
Note that the Victoria webinar was hosted by the Investor Meet Company platform which is a good service and where you can no doubt find a recording.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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