ADVFN AGM – How to Disenfranchise Shareholders, and OFCOM Interest

I was surprised yesterday to pick up an RNS Announcement from ADVFN Plc (AFN) stating that the company’s Annual General Meeting had taken place on that day and all resolutions were duly passed. I was surprised because as a shareholder in the company (and on the register), I had received no notification of the AGM and no proxy voting form either of course.

In addition there is no notice of the AGM given in any RNS announcement, and there is no information on it on the company’s web site. It’s an easy way to avoid folks from voting or turning up at the AGM – you simply don’t tell anyone about it!

Now admittedly I don’t hold many shares. I only bought a few in early 2017 because ADVFN were peripherally involved in a libel suit I was pursing (settled in the High Court on Thursday to my satisfaction – more on that another time). I thought it would be helpful to attend any General Meetings of the company to learn more about the business.

This might be one of my best investments in 2017. Share price when purchased was 27.4p, share price now is 39.5p (i.e. up 44%). But the price did fall 9% yesterday, so perhaps other folks did attend the AGM and asked some awkward questions. If any readers of this blog did so, a report on the meeting would be helpful.

ADVFN run investment information platforms including a popular bulletin board. Profits have been non-existent for most of the last few years, but revenue was £8.2 million last year so the current market cap of £10.5 million is not totally bonkers. The company also indicated it was now focusing on profits rather than growth so results might improve – or at least they might not run out of cash and need to do more fund raising although the picture is not totally clear. One reason for the share price rise was probably the announcement by the company of a cryptocurrency project, using blockchain technology. The application is for a digital wallet to support a social media cryptocurrency. Although it is not altogether apparent who might use that and what the benefits might be, it appears to possibly be a way to support micropayment services for blog contributions. Any company that can claim involvement in the blockchain/cryptocurrency world gets their share price inflated it seems. It’s another “bubble” just like the Bitcoin price.

There has been a lot of public debate about the problem of “fake news” on social media and the failure to remove abusive content or more generally censor irresponsible stories. Financial bulletin boards and blogs are one part of this world of dubious content often posted by anonymous contributors who frequently get their facts wrong. And sometimes possibly deliberately so.

One interesting comment last week was from the Chairman of OFCOM, the media regulator. Patricia Hodgson said internet businesses such as Google and Facebook are “publishers” and not simply “platforms”. In other words, they might be responsible for their content after all. Ofcom are considering the issues although she indicated it was for Government to decide on any action in this area and OFCOM probably do not have the resources at present to cover it. But businesses such as ADVFN might find they are caught up with any general media regulation even though they have so far avoided interference from financial regulators such as the FCA – why that is so I have never understood.

Freedom of the press is a meritorious policy, but the internet has introduced numerous problems such as “trolls” who abuse folks in public often for dubious motives. Politicians are frequently attacked now (death threats are common for example) so we might see some action from them once the politics of Brexit are out of the way.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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ADVFN Results and More on Lloyds

ADVFN Plc (AFN) published their results for the year to June yesterday. I have a very small holding in the company (acquired for reasons I won’t go into). ADVFN are information providers on the stock market, primarily to private investors. Many people monitor their bulletin boards although like many such boards frequented by private investors, they are somewhat of a curate’s egg so far as serious or sophisticated investors are concerned.

But they certainly have a large following – they say they have 4 million registered users. Does this enormously large mailing list ensure they have a profitable business? In reality no.

Indeed last year they barely managed to break even (£47k operating profit) on £8.2 million of turnover. That is however a massive improvement on the previous year when they lost £650k on similar revenues.

At least they showed postive cash flow but the net assets of the company are £1.7 million so they have a long way to go before they show a decent return on the capital employed. Current liabilities also exceed current assets. At least they have changed their strategy so as to stop further investing with a focus on “profits rather than growth”.

Regretably this kind of business model just shows that private investors are reluctant to pay money for good information provision. Folks can sign up a lot of “free subscribers”, which is no doubt ADVFN’s customer base, by spending money on marketing but monetising those eyeballs is another matter altogether. Relying on advertising to do so is also getting more difficult as Google and social media platforms are tending to dominate that market.

The other moral of this story is that one needs to be wary of investing in companies with unproven business models. It’s easy to spin a good story about the enormous demand for a given service, but the real proof of the pudding is when the model generates profits (and cash as well of course). Companies like Uber and Deliveroo appear to be chasing the same mirage. Lots of people like the services and are willing to pay their low prices, but whether they can compete profitably is another matter.

Lloyds TSB/HBOS case. My previous blog post was on the topic of the current legal case being heard in the High Court. One of the witnesses called in the case is Hector Sants, former head of the Financial Services Authority (FSA) at the time of the takeover of HBOS by Lloyds. His evidence is to be heard in secret, for reasons unknown. Indeed, even the fact that this was to be so, was kept secret until challenged by media organisations.

Why is this relevant? Because it was suggested at the time that without the takeover of HBOS, Lloyds would not have had to raise extra capital (and it was that which diluted shareholders interests). But the FSA told them they would still have to raise more capital even if they did not proceed with the takeover. Some shareholders allege that this was a forceful encouragement by the Government to go ahead, regardless of the interests of their shareholders. Perhaps that might have been in the public interest, as was similarly argued on the re-capitalisation of the Royal Bank of Scotland (RBS) and other banks, which was effectively a partial nationalisation. But many shareholders are more concerned with their own immediate interests rather than the public interest although it could possibly be argued that ensuring no melt-down of the UK financial sector took place was also in their interests. So Mr Sants evidence might be very revealing about the motives and actions of the Government, but the public may not learn much about it, even at this late date.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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