Holmes Sentence, Diploma Results, TRIG Announcement, Office Space Surplus and Gamification of Trading

It was good to see that on Friday Elizabeth Holmes, former CEO and founder of Theranos, was sentenced to 11 years in prison for fraud. The US company claimed to have a revolutionary blood testing device and raised $900 million when the product never worked and investors and customers were deceived. This is the kind of sentence that we should see in the UK but never do for companies that mislead investors.

This morning Diploma (DPLM) published their Final Results for last year. Both revenue and profits were ahead of forecast. This is a diversified engineering company which has grown both by acquisitions and organic expansion. With a bland company name and a low profile, this can be an under-appreciated business while it also benefited from a high proportion of export sales last year (a 5% benefit to revenue from foreign exchange movements).

Another announcement this morning was from The Renewables Infrastructure Group (TRIG) which is one of those alternative energy suppliers which the Chancellor recently targeted with a new tax as they were making too much profit. The detailed impact is now spelled out.

The new tax is a 45% levy on revenues in excess of £75/MWh. TRIG estimates this will reduce the company’s NAV per share by 8.3p per share, i.e. about 6%. But the company expects electricity price increases to more than offset that. The company will also see a positive impact from inflation but that is offset by a similar decrease in asset valuations which are discounted at a higher rate as a result.

The overall impact on the share price today at the time of writing is negligible but many of these changes were already forecast of course. This is an example of the problem of investing in companies or sectors where the government is interfering in the market. In this case the government decided to incentivise renewable electricity generation but then decided that companies were making too much money as a result.

An interesting article in the FT has highlighted the rise in empty office space as working patterns changed with more people working partly or fully from home. Occupancy levels have plateaued at about half pre-Covid levels and new construction has slowed. Offices can be repurposed to meet the housing shortage but that is not always easy the article reports. You can see why the commercial property sector is in the doldrums and that is surely not likely to change soon. I doubt people will return to the old working patterns now they have enjoyed the benefit of a lot less commuting, particularly in London. Personally I always hated commuting and avoided it so far as possible. Even after setting up a business initially in the West End, that was soon moved out to the suburbs freeing up two or more hours extra working time.

Lastly the FCA has warned against the “gamification” of trading apps. This is where product features are added to encourage activity. The FCA is right to look at this issue but as usual it is closing the stable door after the horse has bolted. It has been clear for many months that some share trading platforms are encouraging speculation as opposed to long-term investment.

Note: I hold shares in DPLM and TRIG.

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

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Bad Blood and a Hymn for Christmas

One of my books for Christmas reading is “Bad Blood” by John Carreyrou. This is the story of Theranos who developed a novel way of testing blood samples. It has won the FT Business Book of the Year award, perhaps because it was written by a Wall Street Journal reporter and is a good example of investigative financial reporting.

Theranos was set up by the very young and physically attractive Elizabeth Holmes who apparently proceeded to attract many elderly males to her cause. She even had Henry Kissinger and George Shultz (former US Secretary of State) on her board. Her pitch to investors was that she had developed a blood testing method that would remove the need for drawing blood from a vein via a trained phlebotomist. Just a pin-prick on a finger would suffice and anyone could do it so home testing by patients could be done – exceedingly useful for those with on-going medical conditions. It could also avoid the “needle-phobia” that some people suffer from – I know at least one person who would regularly faint when a needle was presented.

There are about 300 million blood tests taken each year in the UK now at very significant cost to the NHS as they cost several pounds each. So you can see how attractive a business would be that could reduce the cost of blood tests worldwide.

Elizabeth Holmes was also a very good sales person in promoting the gospel of reducing and simplifying the process of blood testing. She raised many millions of dollars from investors such as Larry Ellison, Rupert Murdoch and west coast venture capital firms. Later rounds valued the company at $9 billion!

But the only problem was that the product produced unreliable results, i.e. the reports produced were not accurate. This could be potentially life threatening as patients could think they were perfectly healthy when they were not or patients could be referred for emergency investigations when they were perfectly normal. Not only that but the company was faking some demonstrations of the product and actually using a full-size blood-testing machine from Siemens to produce results from such small blood samples by simply diluting the samples to increase the volume – not a sound practice.

Business wise, the book is an interesting insight into the milieu of the venture capital world in the USA and how investigative reporting can get around problems of what was a very secretive company where all employees signed confidentiality agreements. But it is also an example of how vibrant is the US venture capital world when hundreds of millions of dollars can be sunk into a business with a great concept but ultimately unproven product.

In summary, the book is an amusing read in parts about the gullibility of investors and the peculiarities of doing business on the west coast of the USA, but I would not rate it as one of my favourite business books. That’s probably because I prefer happy endings. Elizabeth Holmes was charged with criminal fraud in 2018.

A Hymn for Christmas 2018 (after Christina Rossetti)

In the bleak midwinter, frosty wind made moan,

but earth stood soft and wet due to global warming,

markets had fallen, down and down,

in the bleak midwinter, only yesterday.

Our god mammon cannot hold, nor Governments sustain,

stock prices will flee away despite his reign,

in the bleak midwinter no stable place can be found

when market confidence freezes.


What can I give, poor as I am?

if I were a shepherd, I would bring a lamb;

if I were a wise man, I would do better;

yet what can I give, but my hopes for a better year.


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

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