The short week before Easter gave us news about A1 Pharma’s issue and CybAero’s troubles with the Swedish Inspectorate of Strategic Products (ISP) – both affecting share prices negatively. Both shares fell heavily and the share prices are in both cases close to 1 SEK…A1M’s price is 0.92 SEK and CybAero’s 1.29. Reduced to penny shares, in other words.
The outcome of preferential rights issue became known on Thursday 13th April. Subscription amounted only to 65.1 %. Current owners subscribed 44.3 %, others to 12.9 %, and guarantors 7.9 %. The total number of units (one unit = 3 share and 1 warrant) sold were 35.6 million raising app. 80 MSEK for the development of the company. Personally, I subscribed for all the shares I could and a bit extra.
It is worth noticing that less than half of the current shareholders did participate in this issue. On the other hand, A1M has no history of creating investor value. In April 2015 there was an issue at 5.50 SEK, warrants in November ’15 at 6 SEK, issue in June 2016 at 2.60 SEK and in April 2017 at 0.75 SEK per share. If an investor invested 1,000 SEK in April 2015, participated in all issues from that date on and used his warrants as well, he would today hold shares and units worth 1,162 SEK for an investment of 3,633 SEK. The loss is 68 % of the original amount.
This might be a minor problem if the investor has a long-term strategy. The price will move upwards eventually. On the other hand, this picture threatens to undermine the system of issues as a way of supporting start-ups. If investors can pick up shares after an issue at less than the issue price, there is no point in taking the risk and making money available for start-up companies. This is a typical free-rider problem, but if the general picture is that the price immediately passes below the issue price, no one will find it attractive to be part of an issue – and start-up companies will be short of money.
I hope that the future development of A1M Pharma will turn the table. Until then you can pick up very cheap share in A1M by buying the BTUs. At present, you can buy a unit with 3 shares and a warrant for 2.03 SEK – this is 25% cheaper than the share, and you get at warrant for free.
The trouble for CybAero continues. Investors are still waiting for the factory acceptance tests for three systems delivered before Christmas. If the burn rate, as I calculated it after the report, is correct the company will run out of cash in 1-2 months without payments for the delivered but not yet accepted systems.
This week the troubles continued as the Inspectorate of Strategic Products recalled an earlier given export authorization. The consequence of this is that the framework agreement the company has with a Chinese distributor; AVIC is practically worthless. Earlier estimates was that the turnover generated by this agreement would be 7-800 MSEK.
Share price dropped reflecting the very difficult situation of the company. The coming 2-3 months could be pivotal for the survival of the company. Unfortunately, the company does not make quarterly reports, so there will be no chance of a glimpse of the current cash level and burn rate.