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You sound like you didn't hang on to the 200,000 MFX shares you said you'd bought less than a year ago
So what caused today's spike of 41%? Although the volume compared to most days of some 331,000 shares is large, in value terms this is only about Pounds 35,000 , therefore no reason for the dramatic rise. So do we have a bubble or what? The company should put out some statement, even if only to say that they are unaware of what has caused this rise in price. Tomorrow will perhaps be interesting
No warrants hanging over MFX anymore - recent press release. They've all been exercised putting £1.8m in the bank too - NAV/ cash greater than market CAP and growing the book/business on every front...
....elsewhere there's much enthuisiasm.
Good update as expected. Good longterm prospect now. Put the house on it!
Regardless of the "mellon effect", seems to me the recent dealings are proportionate pointers to future earnings for the business. Been following the progress here and can see decent upside.
We will have to agree to disagree there then. Eventually the past warrants will get converted, possible loans converted etc, though the latter are getting less onerous and in the gift of the business not loan holder for some. There has always been a declared ,Future Vision, of getting to a position of paying out excess capital and I can wait for that time. All these items we are now complaining about were gifted 5 years ago and the recent gifts are far more reasonable, loans without warrants, existing warrents increased in conversion price, loans convertable at banks behest etc. Like I say I can wait for this to play out even if I don't agree with how the rich and senior management look after themselves first.
Yes, Greg Bailey was gifted some free money by Jim Mellon, and this demonstrates the real challenge for investors - there's no way that any upside is truly going to accrue to external shareholders, just to Jim and his gang.
Savvy?, Spent a million, has a book value today of 1.3 million. Thats not savvy thats the who you know network at play.
I am confused by M1keG, the Chairman of the Board is Mr Mellon, who has no son, are you confusing him with Mr Banks (of UKIP fame) whose son is on the Board? Dr Greg Bailey who purchased the warrants and then exercised them is a close colleague of Mr Mellon in the biotechnology field and they sit on various Boards together. He seems however to be a savvy investor and one would expect that he has not invested just over a £1 million for it not to produce some capital return as there is no income return at present. Sadly I had the same logic when i bought my 500,000 shares and rather than make any capital gain, I have merely generated a substantial loss!
You do realise that the warrants were in the hands of the chairman of the board and the largest shareholder (who's son is an IND?), you know, the guys who gives everybody else on the board their jobs? Accounts are history and historically, since the turnaround this bank has achieved a ROE of over 10 percent, Guessing what its going to be this year is just that a guess. My money, literally, is on them eventually getting the cash cow going even if I don't have to like how its done. The growth is there just need a bit more help from the sideline businesses.
The warrants were not exercised, and had the Board allowed them to expire, refusing to allow them to be assigned then other shareholders would be materially better off. On ROE, the figures in the accounts take no account of the dilutive impact of the warrants and the loan stock conversion. That takes the ROE comfortably down to single digits. Note that the company will require significantly more than the minimum under Basel III in view of its small size and so above average risk of failure, according to regulatory norms. It won't be a huge multiple but it will be higher than statutory minimum. This exacerbates the issues around capital - being sub scale increases the capital that you need to write a certain level of business, which reduces the ROE....
It would appear this one does? Page 28 and 29 of annual report indicates Liquidity risk and how receivables are matched against customer accounts. Quote Maturity mismatches between lending and funding are managed within internal risk policy limits Unquote Allowing the warrants to expire? Since when do the rich ever give up another opportunity to make more money. They were always going to be exercised, the power was with the owner of the warrant. I agree about the NAV but the share price is the practical measure. We are so far below NAV due to the uncertaintity of dilution, in this crazy world getting rid of the latter is just as likely to raise the share price!! ROE figures, not sure where you are looking? From the last accounts As stated, profit before income tax for the year was £1.5 million (2015: £2.3 million) on a net interest income of £16.0 million (2015: £13.5 million). Our key metrics remain positive: our return on equity was 10% (2015: 17%), which remains within the range of that of our peer group. Our lending grew by 15% (2015: 13%) over the year. The level of performing loans remains impressive at 94%, a testament to our prudent lending policy. Turning to the balance sheet, our loan book grew by £14.7 million to £116.1 million (2015: £101.4 million) and our deposit base increased to £126.0 million (2015: £106.3 million), a growth of 15% and 18% respectively. In turn, our equity increased by 8% to £13.2 million (2015: £12.1 million). There's the capital problem. When your loan book grows by 14.7 million you need 10.5 pct more tier 1 capital under Basel III and the reduced profit did not provide sufficient for further growth. In some respects its a good problem to have as its at least caused by growth?
How right are you on the financing. It seems to me that Mellon has yet again got a very good deal, which was not offered to the shareholders in general. Either the company is in such bad shape that it can not raise funds from elsewhere, but why would then a new investor take up a 13% stake in the company, or alternatively it was another 'sweet heart' deal. Just think of the money Mellon has made out of this company through his loans and warrants! The company should either have had a rights issue of sought external loan finance at a more commercial rate.
No bank would operate with assets and liabilities matched unless it was a regulatory requirement, because it significantly increases a whole range of risks. Firstly, as there is no certainty as to future profitability because of the short duration of the portfolio, long term budgeting becomes more of a finger in the air job. Secondly, the portfolio is, naturally, concentrated around a narrow range of maturities, making the loan portfolio inherently more risky due to the lack of diversity. Thirdly there is no opportunity to add optimise shareholder value by providing liquidity at a more optimum point in the yield curve, since the maturity profile is fixed. Fourthly, a short duration loan book will not be able to benefit from the same range of security that a longer term book could. In particular, property lending at the short end is more limited, specialist and often more risky. I could go on. I agree that the remaining loan stock and warrants are not significantly dilutive to the share price but they are to the NAV. Had the loan stock been refinanced as straight debt and the warrants allowed to expire the NAV would have remained at the just shy of 13p level it was at the year end. Instead investors get their NAV diluted down to the share price. If there really was no alternative available to Jim Mellon refinancing the company and diluting shareholders' NAV by over 30%, that would suggest that the company is hardly in fine shape, in a market awash with liquidity. The debt should have been able to be refinanced at less than 5% and with straight debt. Given the type of lending being undertaken (consumer, receivables finance, equipment leasing) the rates are high and yet the business makes a marginal profit. If all goes really well and nothing blows up, the company could potentially creep into double digits ROE (with the loan stock converted). That is not an acceptable ROE for the risk shareholders are taking in investing in a very small, niche lending business, and suggests that the peak ROE is less than the WACC. If that is the case then the shares should trade at a significant discount to tangible NAV. A small, specialty finance business in the current relatively benign default conditions should be producing a 15-20% ROE but it is not and without a significant increase in the capital base it never will.
Two interesting posts from the last two posters. Obviously the market is underwhelmed by the exercise of the warrants and I suppose we should be thankful that the share price has not dropped as the dilution has taken place. The trouble is that I believe both Mellon and Banks as the two largest share holders up to date, regard this investment as peripheral. I have written to Mellon on various occasions, but never even get the courtesy of a reply. They should either take the company private or seek a buyer. Hopefully the new shareholder, does anyone know anything about him, with an over 10% holding may shake things up! The long suffering private investors need something, currently no income and no capital gain.
Although I agree the bank is short of capital to expand, in my opinion that is due to the implementaion of Basel III and the banks rate of growth. The major fault her is the periferal companies (Edgewater etc) were supposed to chip in capital to the group but they are all laggards in obtaining profitability. The farce, last year, of not understanding that their own agents were ripping them off probably cost the last bank manager his job and the missing million in profit (which would have been retained as tier 1 capital). The outstanding loans now convert at 7.5 and 9p so at this share price are a non entity as far as dilution is concerned. Unless you can back this up the note on the regulator it is way off base, the 10.5 pct tier 1 and 2 pct tier 2 are what I believe the regulator uses as the prime method of bank health / depositor protection. Matching deposits against lending over corresponding time frames is what this type of banking is about? This is not a Black Rock borrow for 6 months lend for 25 years operation. BTW they have been making profits for several years now so I'm not sure what you regard as "No Prospect".
The new investment is £1m of additional capital, when the bank needs considerably more than that to grow a balance sheet big enough to achieve a decent ROE, given the fixed costs of running a bank. Eventually the loan stocks will need to be converted to bolster the balance sheet, that's a further 41.7m shares to be issued; the remaining warrants are a further 19.8m shares. At present these shares can't all be issued, since the authorised share capital is 150m shares and there are already 118.9m in issue. When the new shares have all been issued the NAV is not much more than the current share price. The company in its full year results trumpeted its growth in the UK PCP market, apparently unaware of the dire warnings that this market is a ticking timebomb, whilst the high margin loans that have maintained profitability of the bank over the last few years are being repaid at an accelerating rate. The regulator is worried about patchy record of profitability of this sub-scale bank and hence insists that assets and liabilities are matched to protect depositors, meaning that any profitability is short term and lending has to be replaced at a rapid rate. The solution for Conister long term has to be a balance sheet 2-3x its current size, which could maintain a level of profitability that would allow the regulator comfort to permit some mismatch of borrowing and lending, which could lead to a far more sustainable ROE and allow the bank to move to a better rating, on the assumption that the non-bank activities don't lose too much money. Unless the bank receives a major cash injection there is no prospect of sustainable profitability; once the market figures out that there needs to be a 1 for 1 or even a 2 for 1 rights issue, the 6p that the company managed to get Dr Greg Bailey in at will seem like a great deal for the bank, but perhaps not so smart for the new investor. In my view the company needs to bite the bullet, raise the cash required to remove the uncertainty and boost profitability before any progress can be made. Unfortunately, seeking to bring in investors piecemeal will only make the situation worse, since those new investors will be loathed to approve a large issue at a price that could attract new money, preferring to muddle on through. Jim Mellon will always get investors excited, but the facts are not pretty.
Overall a buy signal imo, additional funds, allows further expansion, i totally get it. Clears up any will he won't he convert. https://www.investegate.co.uk/manx-financial-group--mfx-/rns/assignment-and-exercise-of-warrants--equity-issue/201707311604156369M/
Looks like 6p per share for nearly 15%. of the shares
M1keG Thanks for the info. Would this be an the offer to the public from two Directors or the Company? Either way without any knowledge of the current trading its seems risky.
My understanding is: 28.3 million available at 6p (if you pay up today and of course if you are a mate of the chairman) After that any outstanding at 7.5p until 10/2017 Plus 20 million at 6p until 10/2017 via SR loan.
What price are the warrants now? It's so complicated to understand.
The terms given to Mr Mellon and Burnbrae for the renewal of their loans look yet again generous and although theoretically negotiated by the Independent Directors, I fear are yet again not in the interests of the smaller shareholders. Why not have a rights issue which at least boosts the equity base and as Mr Mellon and his allies own a very substantial percentage of the equity would not have harmed them. It will be interesting to see who bought the warrants, which currently are exercisable at a substantial discount to the market price.
Interesting large buys in 2 days since results and back to 9.7 today also; near-on a year high. The results had an upbeat message but still wish to know how PIs will be treated v. the big shareholders.