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19/5/201914:40Share Ideas: macro & micro.93,753
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DateSubject
15/5/2019
15:09
skyship: Hazl - especially for you: ========================= PRIM Qtly Update: 8th Feb’19: http://irservices.netbuilder.com/ir/primorous/newsArticle.php?ST=PRIM&id=2697561 As described above we exited the most of our direct holding in UKOG for gross proceeds above investment of over GBP1m returned to treasury. The fact that we have sold most of our holding is not a reflection on the HHDL-1 project and its potential but is firmly based upon applying portfolio management principles. As I have mentioned in previous Investor updates, we should be judged on our ability to deliver tangible value and this, I am pleased to report, represents tangible value to all shareholders. Shareholders will no doubt be aware that in the Quarter we began to build a share position in Greatland Gold PLC. At the time of writing we have 35m shares representing just under 1.1% of the issued capital, purchased at an average price of 1.71p per share. This investment decision was predicated on the outstanding exploration results released in December 2018 for the Haiveron Gold Project near Telfer in Western Australia. We have been looking for a quality gold-related investment for a while as we believe gold exposure would be a good balancing influence in our portfolio. Shareholders may not be aware I researched my thesis on intrusive-related gold deposits in these relatively obscure regions of WA and the Northern Territory and studied the nearby Telfer Mine geology and geochemistry. I am of the belief that Haiveron may prove to be one of the most significant gold discoveries globally in recent times and I am pleased that we have been able to build a meaningful stake. We note that on 5 February Greatland announced a host of what we consider to be outstanding results for the second half of the discovery drill programme at Haiveron, comprising holes HAD006 - HAD009. These excellent results only further compound our view that Haiveron has the hallmarks of a globally significant gold-copper deposit in a world class mining jurisdiction. Furthermore, we believe the recent drop in the Greatland share price to be completely unrelated to the quality of the results published. We will be investigating expanding our stake in Greatland should funds be available to do so as we believe they will be firmly on the radar of industry players looking for potential Tier 1 projects. ===============================
15/5/2019
15:07
skyship: Ploughing my never-ending furrow in search of VALUE. I recently stumbled across Primorus Investments (PRIM). Upon seeing the share price of 0.10p-0.11p I would normally swiftly pass on – the share price is a nonsense and a very clear case for consolidation, a matter upon which I have contacted the CEO. Anyway, on this occasion I decided to read on and was quite pleased to have done so. I have an oft-stated fondness of Private Equity; and in this regard PRIM does partially tick a box. PRIM is an investment company taking stakes in pre-IPO private companies. I read further as it swiftly became apparent that the CEO Alastair Clayton has an interesting CV and clearly has both stock-picking talents and reasonably deep-pocketed investor friends. He also has skin in the game. Since taking control in Nov’15 of what was then known as Stellar Resources, a resources investment shell valued at c£1.25m; Clayton and his Chairman partner Jeremy Taylor-Firth (ex Singer & Friedlander) have issued a total of 1.534bn new shares raising £3.25m at an average price of 2.12p. Both legacy and new assets have risen in value, but the shares have drifted down to exactly 50% of that average subscription price. One marked success is the sale of the private oil drilling operator Horse Hill Developments Limited which held a 65% interest in two onshore UK petroleum exploration licences near Gatwick Airport. This they sold to the listed UKOG in a cash & shares deal, subsequently selling on their UKOG stock to bank an overall £1m profit. Elsewhere, each statutory report and each Update has revealed very thorough information on their portfolio of investments, primarily across tech and resource. Their website too provides all necessary research material: https://www.primorusinvestments.com/ Two other recent RNSs revealed new private investors taking a view: # 4th Apr’19: Stephen Labrum* bought 112.5m (4%) # 8th Apr’19: Steve Ball bought 94m (3.4%) *Stephen Labrum looks to be the Financial Services Transfer Pricing partner @ KPMG – whatever that means!? In the most recent Qtly update on 8th Feb’19, the CEO stated: “I should mention that over the Quarter I have had a lot of interaction with both existing and potential Primorus shareholders. Throughout these discussions, which were predominantly positive, two themes seemed to recur that I would like to briefly address. The first one is regarding the possibility of, at the appropriate time, using excess funds to potentially buy back some of our outstanding issued capital. Given our share price relative to the Board's view of value this argument clearly has merit. We are having a look at the ability and mechanisms to determine if this is feasible. If the results of this are positive it will certainly be one tool available to the Company to invest in itself should the value proposition of its portfolio be as compelling as we believe it is today. Secondly a number of shareholders expressed the desire to see a corporate marketing presence on social media and other such platforms. Whilst I acknowledge this may be useful, we also see significant challenges in ensuring a presence on social media doesn't infringe upon our AIM and directors' duties, not to mention MiFID and MAR requirements. Thus, we will continue to scope a presence that is both appropriate and responsible and report back to shareholders with our solution.” To my mind the best way to improve the share price is to be patient - be successful and the discount will close. Also a good idea to promise distribution of a %age of sale profits, or an annual dividend of, say, 3% of annual NAV. I will be communicating these increasingly common Private Equity strategies to Clayton. I won’t go into any further detail at this stage, suffice to say that at 0.105p versus an NAV of 0.215p and with no debt, the share price is clearly value should the future newsflow reflect the Board’s optimism. An interesting microcap worthy of investigation due to the 50% NAV discount, especially for Hazl who will be interested in my next post showing PRIM’s investment in GGP…
09/5/2019
14:02
hosede: Tesla's Capital Raise Offered No Real Benefit To The Company Or Its Suffering Shareholders Jim Collins As I began to write this column on Tesla, as I always do, I checked the price of Tesla shares. Tesla shares' Wednesday closing price of $244.84 deserves some historical perspective. On February 28th, 2014, Tesla shares closed at $244.81. So, in honor of CNBC's mindless "if you put $10,000 into stock X on this date you would have this much today" articles, I would note that if you put $10,000 into Tesla on February 28th, 2014, today you would have $10,000.03. Yes, for the price of funding Elon Musk’s dreams for more than five years you would have made 3 cents. This is in a time period in which the Nasdaq 100 ETF, QQQ, has more than doubled in value (from $90.84 on February 28th, 2014 to $185.77 today) in addition to creating wealth through the payment of a dividend, which Tesla never has. Tesla stock is treading water. Why? Because the company is, as well. Elon Musk, chief executive officer of Tesla Inc., smiles while speaking to members of the media outside federal court in New York, U.S., on Thursday, April 4, 2019. U.S. District Judge Alison Nathan telegraphed her initial thoughts as the SEC and Elon Musk's lawyers presented their arguments over whether the Tesla Inc. CEO should be held in contempt for tweets the agency says violated an earlier agreement. Photographer: Natan Dvir/Bloomberg Elon Musk, chief executive officer of Tesla Inc., smiles while speaking to members of the media outside federal court in New York, U.S., on Thursday, April 4, 2019. U.S. District Judge Alison Nathan telegraphed her initial thoughts as the SEC and Elon Musk's lawyers presented their arguments over whether the Tesla Inc. CEO should be held in contempt for tweets the agency says violated an earlier agreement. Photographer: Natan Dvir/Bloomberg © 2019 Bloomberg Finance LP The financial media rushed to congratulate Musk on his capital raise of the last week, as I and many others had been trumpeting this company’s need for fresh capital for the past two years. But when a company burns as much cash as Tesla does--including a $640 operating cash outflow on Q12019-- fresh capital doesn't go very far. Also, remember that two-thirds of the capital raise was composed of debt, in the form of Tesla's newly-issued 2.0% 2024 convertible notes, so there will be a corresponding increase in Tesla’s interest expense in coming periods. I was a sell-side autos analyst for 11 years, and in that world the back of the envelope is always handy. After Tesla’s atrocious cash performance in the first quarter, some fresh capital was clearly needed--as I mentioned last week in Forbes--but is this offering merely a Band-Aid or a pile of fresh kindling on which Musk can build his sustainable transportation future? It’s a Band-Aid. The numbers don't lie. The math is simple. First we start with the net proceeds from the transaction, which consist of $847.6 million from the equity deal and $1.84 billion from the convert deal (both figures are net of underwriting commissions.) YOU MAY ALSO LIKE So, we’ll call that an even $2.7 billion to begin. First and foremost, we have to deduct the net proceeds from the “additional note hedging transactions” Tesla entered into as part of the convertible note offering. Essentially Tesla buys long-dated calls on its stock from the underwriters of the deal, which would lessen the dilution to existing Tesla shareholders if Tesla shares were to rise beyond the notes’ indicated conversion price of $309.53. In exchange the underwriters purchase from Tesla warrants that would, again, insulate the company's shareholder base from a “skyrocketing” share price scenario, as indicated by the warrants’ strike price of $607.50 per share. The calls cost Tesla $476 million and the warrants generated proceeds of $174 million for Tesla. For the sake of argument, we’ll call that a net reduction of $300 million from the $2.7 billion in proceeds from the joint offerings. But why would Tesla need these hedges in the first place? While those derivative transactions are commonplace among convertible bond issuers, on March 1st of this year Tesla paid $920 million to settle converts issued in February 2014--that date again--that carried a strike price of $359.87. Tesla shares finished the conversion period more than $60 below that strike price, so there was no dilution to Tesla shareholders from the 2014 convert. So why waste $300 million “protecting221; shareholders from the same potential dilution five years in the future? Because this is Planet Musk, and our non-Tesla vehicles might as well be “horses” in the short period before everyone on Earth is making big bucks using Teslas as robotaxis. So, deducting the net cost of the hedges, we are at $2.4 billion in gross proceeds from Tesla’s offerings. The next call on cash was implied from my last paragraph: debt maturities. Tesla has another $566 million convert coming due in November, which, as it is old SolarCity paper, carries the fantastical conversion factor of $759.36 per Tesla share. On page 17 of the offering prospectus Tesla disclosed total debt maturities of $1.1 billion for the balance of 2019 and $890 million for 2020. Make no mistake: Tesla sold new debt in large part to pay off old debt. So, I will subtract that $1.1 billion in maturities from our tally of $2.4 billion--the end of 2018 is less than 7 months away, after all. Less the costs of financial engineering, Tesla only raised $1.3 billion from the combined offerings. To be fair, one third of the offering was equity, so Tesla’s deals weren't just about financial engineering. The company’s March 31st balance sheet showed clear signs of a company in severe financial distress, and that's the next call on the recently-raised capital. Tesla’s financials showed a massive $1.565 billion deficit in working capital at the end of the first quarter. That is not, to use Musk’s words, sustainable. So, Tesla’s prospectus shows that $1.565 deficit transforming into a $500 million surplus after applying the net proceeds of the offering. Remember, though, my math is different than “prospectus math.” The pro forma calculation in Tesla’s prospectus allots nearly all proceeds from the offerings to working capital (in the form of cash,) while my numbers assume that debts that need to paid in the next seven months are indeed paid. So, to put Tesla’s working capital balance at zero, my “real proceeds” tally for Tesla's offering is reduced from $1.3 billion to $800 million. So, we started with $2.7 billion in net proceeds from the offerings, and Tesla’s financial engineering, massive debt load, and prior-period cash burn have already used up $1.9 billion of it. Doesn't leave much to run the business, but it is in covering the costs to maintain the business that that $800 million disappears. Owing to its negative cash flow--all calculations come back to that point--Tesla has been underspending massively in its business. Tesla’s capex (ex- the cost of solar installations) in the first quarter was $279.9 million. This contrasts with Tesla management's publicly announced capex budget of $2.0 to $2.5 billion for calendar 2019 and the estimated “annual rate for the next two fiscal years” of $2.5 - $3.0 billion in capex disclosed in the company's most recent 10-Q. Did Tesla forego necessary capital expenditures in the past year because the company was low on cash? Musk and new CFO Zach Kirkhorn did not use those words on the most recent conference call, but hinted at such methods, and my 27 years of following the auto industry tells me that they cut spending to stem cash outflow. That’s not sustainable. Remember that Tesla’s main assembly plant in Fremont, CA, was built in 1961 and older facilities tend to require more maintenance capex. So if Tesla should be spending about $680 million per quarter in capex, but spent only $280 in the first quarter and $325 in the fourth quarter of 2018, that leaves a deficit of $750 million that needs to be covered. So, my running tally of $800 million in “real proceeds” from Tesla’s offerings becomes $50 million. That small amount would easily be eaten up by a return to normal levels of development spending--Tesla̵7;s R&D spending in Q12019 was $27 million lower than in Q12018. Tesla’s development costs should logically be rising, not falling, in the midst of Musk’s autonomous vehicle push. Bottom line: the financial media headlines read “Tesla raises $2.7 billion to fund growth.” Those headlines should have read “Tesla raises $2.7 billion to fund unnecessary hedging transactions, upcoming debt maturities and the necessary level of maintenance capital spending, leaving zero to fund growth.” Catchy, huh? Tesla is treading water as a company, but still carries a growth stock multiple on any metric (revenues, EBITDA, EPS, etc.) Tesla stock has been heading down with a bullet since Musk’s infamous “funding secured” tweet last August drove the shares to $387. As new capital to fund growth was not raised in this week's offering, I see no reason why that downtrend would not continue.
15/3/2019
13:15
hosede: Good piece today from Capital conflict. Shouldn't borrowing money to buy back a Company's shares be made illegal? Corporate share buybacks, and debt. Last year, corporate share buybacks rose an incredible 48%. Why do they do this? Supposedly to return value to shareholders. If you own 100 out of 1000 shares, you own 10% of the company. If the company buys back shares for a few years, that could become 100 out of 700, which is over 14%. When you didn’t even buy any more. This entitles you to a greater share of the profits of the company. That’s how earnings per share rises as companies buy back shares. The amount of the company earns is split between fewer shares. Supposedly that’s why companies do this. Why don’t they just pay dividends? Management incentives. Imagine you are a CEO. Your salary is big, but the shares your firm has given you offer even bigger rewards. If the share price does well. What’s an easy way to boost the share price? Buy some back! Rising earnings per share, and a large buyer in the market (the company itself) will push the share price higher. Then a few years on, you sell your shares for an excellent price, and take all the praise for a job well done. But where does the money come to buy so many shares back? From company earnings? Not recently. It’s come from debt. Interest rates have been so low for so long that borrowing money has been seriously cheap. There are two ways to increase earnings per share. Increase earnings, or decrease the number of shares. -------------------------------------------------------------------------------- Why bother going to all that effort to increase earnings? Much easier to just borrow money, and buy shares, improving your earnings per share that way. ---------------------------------------------------------------------------------- America has seen record levels of this short-term thinking. US corporate debt has doubled since the financial crash. Global debt is now three times the size of the world economy. There’s no sign of a slowdown either. In the second quarter of 2018, US companies announced $430 billion of buybacks. This nearly doubled the record, which the market had set in the first quarter.
14/2/2019
15:39
skyship: PTO - Again re TFG: Coincidentally today received this from Keppler Trust Intelligence: https://www.trustintelligence.co.uk/investor/articles/sweet-treats-retail-feb-2019 Tetragon Financial Group 47.4% Tetragon Financial Group (TFG) has net assets of $2.1bn and trades on a discount to NAV of around 47% (Numis estimate). There are US$ and £ denominated shares, but both give exposure to the same underlying investments and dollar exposure. A discount this wide clearly raises eyebrows, but we believe TFG passes the sniff test. The company is certainly complex – it comprises investments in a number of “alternative” funds – as broad as convertible bonds, event driven equity strategies, bank loans and real estate which shouldn’t exhibit much volatility. However, it also has stakes in a number of asset management companies (held within TFG Asset Management, representing 30% of NAV), many of which manage the company’s capital, and the valuations of which could be quite volatile over the medium term. However, TFG has largely achieved steady positive returns since launch, and certainly since the current strategy has been adopted. Indeed, over the past five years, the NAV total returns have been 10.3% pa. Given the underlying asset classes, we hazard that the NAV should be relatively uncorrelated with equity markets going forward. The company’s objective is to provide stable returns across cycles, and generate distributable income and capital appreciation. TFG’s shares currently offer a dividend yield of 6.1%. The principals and employees at TFG own around 26% of the shares, which certainly aligns them with shareholders, however it is worth noting that the shares are “non-voting”, which puts shareholders at the mercy of Tetragon’s principals: Reade Griffith and Paddy Dear, who also control the investment manager. Historically there has been a certain about of discord between some non-voting shareholders and Tetragon evidenced by the recent buyback tender for 4.5% of the shares, which according to Numis was executed at a c. 49% discount to the prevailing NAV estimate, and a 6% discount to the share price which certainly reflects some dissatisfaction. One other wrinkle for potential investors might be the fees which are charged at 1.5% of NAV and a 25% performance fee (also on NAV) above a hurdle of Libor +2.65%. The stated OCF of TFG is 1.74% (as at 31st December 2017) and the KID RIY cost is 5.66%. In our view, there is a price for everything, and so corporate governance issues aside, the discount of 47% on a portfolio of uncorrelated assets which have delivered solid returns in the past is worth a closer look for those who aren’t too fainthearted.
21/12/2018
15:28
henryatkin: Hosede....how many companies or index actually got anywhere near 1x NTAV in any recession. At the market trough in 2009 ARM for instance had a share price of 82p compared to its NTAV of 15.17p per share. ASC had a trough share price of 245p compared to NTAV of 33. Its quite conceivable that in a deep recession AMZN would trough at >6x NTAV and may be a lot more.
18/9/2018
16:28
skyship: Hosede – Are these fellows friends of yours? Sorry a bit long….but CRV’s comments well worth the read: As mentioned in previous communications with shareholders, it is our belief that risks to the global economy in general and the capital markets in particular are misunderstood and greatly underestimated. Asset prices have been wildly distorted by nearly a decade of aggressive monetary policy while fiscal policy remains equally accommodative for politicians accustomed to making generous promises to an electorate unwilling to pay for ever greater government largesse. The effects of these twin phenomenon include: Listed shares trading at historically high prices, bonds trading at historically high prices (low rates) and an explosion in public and private sector debt. Globally, the total amount of government debt now exceeds $63.1 trillion, according to a Pew Research Center analysis of International Monetary Fund data. Corporate debt continues to grow as a percentage of global new issuances. According to data provided by Deal Logic corporations borrowed 55% of the $6.8 trillion in syndicated bond sales completed in 2017. Where did these record borrowings go? Certainly some of the proceeds went towards productive capital investment; bridges and ports for governments and new plant and equipment for companies. However, we suspect far more went to towards social welfare spending, military adventures and public sector pay for the government borrowers and share buy backs and dividend recapitalizations for corporate debtors. On the corporate side, where we spend our time analysing balance sheets and share prices, the continuation of share buybacks accelerated. There is nothing inherently wrong with buy backs. In fact a share buy back can be one of the most effective tools for increasing shareholder value. When the shares of a publicly traded company are selling at a discount to their intrinsic value and the company is generating free cash flow the highest and best use of capital may indeed be reducing the shares in issue. Sadly, we are not seeing much of that. What we are seeing is well paid managers, who own very little of the company they manage, spending shareholder's funds to purchase shares at or near all-time highs (Earnings multiple and share price). This has the effect of increasing earnings per share in the short term and thus often triggering bonus packages for management that further takes more capital out of the company. This capital may well be needed in the future. In many cases shareholders fail to notice that their employees with very little skin in the game, are making decisions that maximise their compensation while they have little or no exposure to future downside. This lack of skin in the game is rapidly becoming a threat to long term shareholders and will become readily apparent at the first economic downturn or financial crisis. It also continues completely unchecked in an environment where individual securities are purchased largely because of the money pouring into passive funds. With this market dynamic as a framework, poor decisions can be rewarded as long as the index continues to attract net capital flows. INVESTMENT MANAGER'S REPORT FOR THE SIX MONTH PERIODED 30 NOVEMBER 2017 As discussed at the opening of this report, we believe we are in a period where the market perceives the risks to be far less than reality. At some point sooner rather than later, we believe there will be a very disruptive reversal which will at a minimum see asset prices reverting to the historical mean. Or it could be much worse. Rather than mean reversal, we may experience an asymmetrical reversal that brings asset prices down to well below historical averages as measured by earnings multiples in shares or yield in bonds and property. We believe the latter scenario becomes more and more likely as the 'everything bubble' continues to inflate. We may be wrong. Perhaps we fail to comprehend a new economic paradigm. If this is the case than we shareholders will have to reconcile the opportunity cost of a lost decade when almost everything except Craven House shares rose in price. Perhaps we should have spent the past half decade chasing expensive deals geared to the maximum level without worrying about the downside. If, however, as we expect, this time is not different, we should be in an excellent position to capitalise on distressed prices sometime in the not too distant future. Desmond Holdings Ltd, Investment Manager to Craven House Capital Plc
25/6/2018
15:59
hpcg: The great thing about quarterly reporting is one gets to adjust quickly to a change in trend. A PE of 25 is fine so long as a company can up its profits by 25% in the next 12 months. When the economy and more specifically a company is growing faster over time then one can buy at a higher multiple because one can anticipate a higher multiple, or at worst that the company will still have a higher share price even if the multiple compresses a bit. However if growth slows the multiple compression is not self regulating with a static price, the price also has to drop. So the question is: after the as good as it gets Q2 will profit growth and the share price have adjusted for the slower growth in the next 12 months? Apologies, as the table below is unlikely to display well but it models a constant 25% YoY growth and PEG of 1 compared with a second model where the growth drops to 20%. To maintain a PEG of 1 the share price must remain the same (actually drop a bit, but not much). In terms of share price behaviour this literally means a year of consolidation, after which the price can start moving up, but at a slower pace. The real world is not as clean and the bigger the disconnect between current expectations and new expectations the worse the share price reaction. Go from a price which assumes 25% growth to one which assumes 15% growth and the share price needs to drop by a third and it will take 4 years to recover to where it was. A chart of CMG, Chipotle Mexican Grill, is a good illustration of a reset and new assumed lower growth trajectory. Consolidation and correction are just the market following some simple mathematical guidance based on growth expectations. price now 100 195.3125 244.140625 305.1757813 381.4697266 476.8371582 profit in 12 months 5 6.25 7.8125 9.765625 12.20703125 15.25878906 forward PE 25 25 25 25 25 25 PEG 1 1 1 1 1 1 profit now 2 5 6.25 7.8125 9.765625 12.20703125 trailing PE 50 39.0625 39.0625 39.0625 39.0625 39.0625 growth to 20% price now 100 195.3125 187.5 225 270 324 profit in 12 months 5 6.25 7.8125 9.375 11.25 13.5 forward PE 25 25 20 20 20 20 PEG 1 1 1 1 1 1 profit now 2 5 6.25 7.8125 9.375 11.25 trailing PE 50 39.0625 30 28.8 28.8 28.8
08/5/2018
15:31
simon gordon: John Lee in the FT - 4/5/18: I write this having just returned from the two-day Mello private investors conference in Derby, where I spoke about my 60 years as a private investor. This highly entertaining event — covered elsewhere on these pages — had 500 or more investing enthusiasts and 50 companies either presenting or available to talk at stands. There was a real buzz about the place. The most absorbing session I attended was on profit warnings, given by Ed Page Croft from the team at Stockopedia, an investment website. All investors are on the receiving end of these from time to time, with the unwelcome news usually delivered at the start of the day. Stockopedia analysed 245 profits warnings made between January 2013 and August 2016 and made a number of findings. First, in the six months before the warning, the relevant PLC’s shares had fallen by an average 6 per cent; second, the average immediate fall on the warning was 19 per cent; third, the price decline continued over the next six months; and fourth, 12 months on, only 13 per cent of those shares were standing at a higher share price than that prevailing when the warning was issued. Finally, of the 245, 64 per cent delivered one warning, 25 per cent two, 5 per cent three, and 6 per cent four. The conclusion seems inescapable: unless there are special factors or one is taking a very long-term view (and particularly if the company concerned is not strong), then you should sell as soon as possible on the first warning. There are two points relating to my own holdings. As I operate a concentrated portfolio, my individual holdings are fairly large, thus much less marketable and easy to sell quickly. Second, while I am very much focused on small-cap companies, those I hold are generally strong and able to maintain or even increase dividends through difficult periods. Two recent examples come to mind: PZ Cussons and Air Partner. With the former, a large-cap healthcare and consumer goods manufacturer, difficult trading in the UK and Nigeria caused a warning in March that “profits for the full year will fall short of expectations”, resulting in an immediate 16 per cent fall in their shares. However, this is very much a long-term holding on which I still show a substantial profit. I have no qualms about its ability to maintain dividends; thankfully its shares have started to edge back up. Air Partner, a small-cap aviation services group, was rather more complex. It announced on April 3 that an “accounting issue” had been discovered dating back to 2010-11: “a non-cash item that has no bearing on the company’s cash balances”. The suggested total sum in question was £3.3m, and unfortunately this announcement, which advisers said had to be made immediately, raised more questions than answers. The shares plunged — investors being understandably unnerved — halving to 70p over the next few days. I believed this was a substantial overreaction, albeit a nasty blow to confidence, but one the company should be robust enough to withstand. A more reassuring announcement followed on April 11, indicating that the total cumulative impact will not exceed £4m, cash balances were strong and the dividend for the year was actually going to be increased. The shares have now recovered significantly, to around £1. For both PZ Cussons and Air Partner, after taking everything into account, I stayed put. At the end of my Mello presentation I felt compelled to draw investors’ attention to the worrying situation at failed stockbrokers Beaufort Securities, in which, thankfully, I have no involvement. For those of you, like me, who believed our assets with brokers — cash, shares in nominees, Isas and so on — were ringfenced and protected, then think again. Beaufort’s administrators, in this case accountants PwC, can seemingly take administration costs from clients’ funds where they are not covered by the failed firm’s assets. PwC has indicated that its administration could take four years and cost up to an eyebrow-raising £100m. Beaufort had 29,500 clients; the intention is that those with small funds will be repaid relatively soon and those up to £50,000 will be covered by the compensation scheme. Those above that — estimated to be as many as 700 — will bear the brunt of the costs and take the haircut. In the House of Lords I have put down a written question, “To ask her Majesty’s government what is the legal basis that allows administrators of failed stockbroking firms to levy charges on clients’ assets held by those firm”. I await a response. The Beaufort saga is only just starting to unfold. There are clearly serious wider implications here and it may well develop into a cause célèbre.
29/9/2017
06:47
temmujin: RKBeekeeper Investment Case: Zanaga Iron Ore Company (ZIOC) Wednesday, Sep 06 2017 by Ash Deans 0 comments 3 Every now and then I come across a share that I was not expecting to find and that I’ve never heard anything about before, this is a classic example of one of those shares. Yesterday Zanaga Iron Ore Company popped up on my radar due to a very strange action in the share price and some very large trades moving through a stock that typically sees very few trades per day. This much un-loved stock may actually prove to be one of AIMs biggest movers this year! Let’s start with the fundementals Shares in issue: 279m Free Float: Approx: 75m (27%) Current MCap: £17m 52 Week High: 212p 52 Week Low: 4.6p All-time High: 212p (No dilution since this high!) All-time Low: 1.35p Cash in Bank: Approx $4.5m Zanaga Project Details The bare fact is that the company sits with a mineral resource situated in the Republic of Congo that is one of the world’s largest with up to 6.9bn tonnes and of which 2.1bn is iron ore at a 66% fe. These figures have been produced in compliance with the key JORC code and the iron ore NPV (after financing and net of production and transportation) has been valued at anywhere up to $966m net to ZIOC based upon the current iron price of approx $55/tonne. (If the price of Iron Ore moves back closer to the $80 range then this puts the value up to $1.4bn!!) The project is a 50/50 collaboration with Glencore ($40bn Mcap), with Glencore hold 1 share more than Zanaga to give them control of the project. Zanaga management have been playing the long game this last two years, steadily progressing the project through, in the most important instance, the ratification of its Mining Convention and the lodging of the Environmental Permit that is now VERY OVERDUE and that will be another potential major milestone in the progress towards exploitation of this world class ore resource. Next Catalyst This project is waiting on the Environmental Permit to be obtained, this was expected at the end of the 2016 fiscal year which means it is now several months overdue and can land any day now! Once the permit has been agreed this could spark a chain of events that will send this share price on a crazy journey. With the permit in place I would expect ZIOC to look at selling their stake in the project and due to Glencore’s huge success over the past couple of years they are now in a cash rich position and according to their chairman they are looking to buy out projects that they already have a stake in. “We are looking for opportunities around,” he said, adding Glencore was particularly interested in assets where it already had stakes or partnerships. This would put ZIOC firmly on their radar, the only outstanding issue being the Environmental Permit which should land very soon. My View: What happens next Based on my research I strongly believe that once the Environmental Permit has been obtained ZIOC will look to sell their half of the project, either to their partner Glencore or to another party, potentially a Chinese interest as there have been rumours of interest from China in the past. This is backed up by the share transfer announced on the 3rd April 2017, which I believe was to get everything ready for the sale of the asset. I also see the directors holding a huge percentage of the shares in issue here which is a sign of confidence in my mind that they know what is coming. It would not surprise me if the deal is already in place and the permit being obtained is the catalyst to finalise it. In regards to the price for the sale of the asset, based on it being one of the world’s leading iron ore assets I would be surprised if it were to sell for less than $100m (fire sale price), with my estimate being somewhere between $200m-$300m. When you compare this to the current Mcap of £17m you can see the huge value here! The Mcap appears to only be this low as it is so far off people’s radars at the moment and the overdue nature of the Environmental Permit. Downsides? Are there any risks here? Of course, as with all shares there is a potential risk here that there will be further delay in the Environmental Permit, or that it might not be granted. However, given that all other permits and licenses have been obtained I see this as extremely unlikely. The risk to reward here is huge in my mind. Very low risk, massive reward. Targets The movement in the share price here is going to be driven by the Environmental Permit being obtained… On that news I would expect the share price to move to around 50p per share (600%+ Rise) I would then expect the share price to continue to rise up to the point of the asset sale, which would likely be over £1 per share (1300%+ Rise) Due to the Very Low free float in this share it moves incredibly quickly which will make it very difficult to by once the RNS lands so this is one you want to be in before the news lands. If you wish to check the figures here in this post then I suggest you take a look at the most recent investor presentation here to get an understanding of the size of this asset: hxxp://www.zanagairon.com/pdfs/ZIOC-Investor-Presentation_21-Sept-2016.pdf The share price at the time of writing this post was 6.125p Note: I have emailed the company to obtain answers to a couple of outstanding questions. I will update this post once I get a reply.
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