Member Info for Sorcerer

The two things that Avacta needed for a major share price rerate are:

1. Material news about positive progress with the phase 1 trial.
2. A sufficiently broad base of potential investors who understand the commercial implications of said progress.

We already have number 1 - the January RNS was astonishingly positive. Today is about kick-starting number 2 - and not with PI’s investing a few grand, but with the analysts and financiers who shape the decisions of the biggest players in the market.

This is a big day for Avacta.

Indeed, very interesting article and I particularly liked the closing paragraph on what this means for the value of Avacta “But as outlandish — or not depending on your philosophical perspective — as it sounds, I believe that £3 billion could be a conservative estimate. “ Nice

Great interview with AS brimming with confidence and keen to emphasise how significant these results are. He was given the opportunity to caveat the findings this far and he didn’t - he said the data were unequivocal. He was also keen to point out that this is a proprietary platform licensed exclusively to Avacta.

I sat on a train full of ordinary people this morning and couldn’t help thinking that Avacta is a name that they will all come to know in the coming weeks and months. The world has yet to appreciate the significance of today’s news, but it will.

Putting aside the rights and wrongs of everything that has gone on over the past few weeks, the business was valued at about £15m just before the fundraising, with no cash and no plan for how to take the business forward into profitability. We now have both and we all expect the BOD to shortly start to announce positive news that will improve the position further, yet we are valued at just £11m. It’s also not so long ago that the business was valued at £150m, with not much more cash in the bank than we have now and in the midst of a global pandemic. With pre-pandemic growth restored, cash in the bank and near-term news drivers pending, I’m expecting a bounce before long, as the disconnect between the self-inflicted current share price and the underlying value of the business becomes apparent. If we got back to £150m (and why wouldn’t we with the growth we’re now seeing?), then that’s about 4.7p, which is 13 times the current share price.

Yes, that's certainly a possibility Insti. I think we're in agreement that, whatever route, there's an opportunity for a suitor to sweep in and pick up a great business, while also giving investors a reason to be cheerful again.

I can see why that may be LR's preferred outcome Insti, but that is predicated on the BOD remaining in control of events. The whole point about a hostile takeover is that the suitor goes over the BOD's heads and makes an offer to shareholders that they can't / won't refuse. In that case, the BOD just get 6p per share for their existing holding, like everyone else.

Davand, as I understand it, they can't reject an offer for the company, they can only make a recommendation to shareholders, although what such a recommendation would look like in the current circumstances stretches the imagination somewhat. "Ermmm, the BOD is obliged to make shareholders aware that an offer has been received which values the company at 6p per ordinary share, which is some 17 times the current share price, but the BOD recommends that shareholders reject this offer in favour of the BODs proposed plan to dilute retail investors holdings by 75% so that new institutional investors and Board members can up their stake in the company for a fraction of what it's really worth. Trust us, it will all come good under our plan, because delivering shareholder value is our top priority". And in a hostile takeover, if the BOD is obfuscating to resist making the offer public, the bidder just announces their bid to the market, with an offer to also bridge any short term financing needs, so the BOD then has to explain why their alternative is better for shareholders.

Institution, interesting analysis, but why not make a hostile bid now (this week, ahead of the EGM) and pick up the whole company for just £45m (6p x 750 million shares in issue)? Existing investors would take their hand off for it and the BOD's plan then lies in tatters?

I think HJ’s purchase on the open market is interesting, as he’s also participating in the Directors’ placing, but for a relatively small amount compared to the other directors. Either he wanted more and wasn’t given it, or he’s hedging his bets in case there’s a hostile bid between now and the EGM.

I suspect it’s the former and I think the reason is that Chang and Rees wanted to protect/increase their existing shares in the company and they insisted on a larger allocation in return for the short term loan, which left less for everyone else. I still feel that a hostile bid is possible, but any suitor would need to move very quickly, given the time they have lost over Christmas and New Year. In that scenario, the planned placing, including the directors placing, would become null and void, superseded by whatever offer gets made for the company (for the existing share capital, not the enlarged amount, which doesn’t take effect until it’s voted through at the EGM). So, is HJ building a bigger stake, or hedging in case the BOD’s plans get scuppered by an interested party? As it stands, he now wins either way.

Yes, that’s a risk short term Davand, but the reason that happens is that people usually believe a placing price to be a fair assessment of the value of the company. That won’t be so for long with YGEN - they were valued at about £150m two years ago without the expansion in capacity that they funded through Covid, without Ranger sales and with similar cash in the bank to what they will have after this fundraise. The fully diluted equivalent to that sp will be around 5p, which is why I suggested 5p would be a sensible offer for a hostile bid between now and the EGM, as it’s a much fairer reflection of the real value of YGEN than the price of the placing, which was left until they were over a barrel, with the sp ridiculously depressed (1.6p is just 8% of YGEN’s recent value) and then a 75% discount applied to boot), all of which means that the placing price values YGEN at something like 2% of what we know the company should (and no doubt will) be worth. No wonder LR is happy to dig deeper into his own pockets than he has ever done before - it was a steal at 1.6p, let alone 0.3p

I think the reason the sp is edging up is that people are realising that there will likely be nowhere near enough shares to meet demand from retail investors. There is no limit to how many shares you can ask for and no limit to how long you need to have held your existing shares, so anyone and everyone can subscribe to as many as they like. The more the SP rises ahead of the retail placing, the more attractive it becomes, which will likely mean that those who participate will get a tiny fraction of what they asked for. I can see the logic of holding out to get them at 0.3p, but the restricted volume means it’s unlikely to meaningfully reduce people’s average. The only way to guarantee a reduced average is to buy on the open market now, which is what BH did last week, which of course drives the share price up. Got my average down to just over 3p by doing that last week myself, which I think gives me at least a chance of getting my money back over time, even if it’s galling to have been put in that position by actions of the BOD.

Davand - it would be £40m, they would only need to acquire the 800m shares already in issue. The second tranche can’t be issued until the EGM, so it would be a swift move, ahead of the EGM to propose an alternative that would be more attractive to existing shareholders than what the BOD are proposing. £40m for a global business with £20m turnover on the brink of break even.

I think 5p would be a distinct possibility if anyone was interested because the business is a really great business that’s just been run with no regard for shareholder value. The BOD must know it’s a possibility too - maybe that’s the reason for this being done three days before the Christmas break, when everyone who might work on a takeover offer isn’t working.

I don’t think so - they’d have to make it an attractive alternative to waiting for the recovery, which I suspect will miraculously happen very quickly.

If anyone has been eying up YGEN, would now be the time to make a move? Put in an offer at 5p a share and existing holders would take their hand off for it.

"The year-to-date performance and healthy commercial pipeline supports unchanged management revenue expectations for the year as a whole"

"the Board continues to assess its cost base in the context of its pipeline of commercial partnerships and discretionary investment options. The Board is confident that it can further reduce operating costs to achieve positive adjusted EBITDA in the next financial year, and can exercise control over discretionary spending and working capital to manage the Group's financial position"

"Lyn Rees, Chief Executive Officer of Yourgene, commented: "The year-to-date performance informs the Board's confidence in the business remaining on track to deliver full-year revenues in line with expectations and to prioritise market penetration over near-term EBITDA delivery. Yourgene remains well placed to exploit the opportunities available to its growing portfolio of genomic products and services and, with additional partnerships in place and being added, is expanding its market access to create significant strategic value."

Question for the EGM: How can so much have changed in just six weeks?

But if they're that desperate, LR's position must be unsustainable, given what he's on record as having said. And how on earth will they get the institutional investors to support it? (unless they're all out already, in which case there are other questions to answer).

One thing that struck me about the announcement is the apparent urgency to push ahead with the first tranche of 66m shares. That will only raise £200k, but it seems that will be pushed through immediately, based on the existing authorities that the BOD have. It reads that the BOD shares will all be part of the second tranche, but I also noted the following in the detail of the fundraising: "On or before Second Admission, the following Directors intend to step down from the Board: Adam Reynolds, Dr. Stephen Little, Hayden Jeffreys and Dr. Joanne Mason". Are they stepping down before their new shares are approved, or afterwards? Will any of the initial tranche be allocated to the directors, or is it all via an open market bookbuild? Why the urgency for the first tranche? Who benefits from that being secured ahead of the EGM?

I think there is more to play out here than we can see at this point. We have a company that recently told shareholders they didn’t need to raise funds not only doing so at the lowest ebb the sp has ever seen, but discounting the raise by a whopping 75% to boot, when the business is not just fundamentally sound, but growing well and with a good pipeline. The BOD have a great deal of explaining to do ahead of the EGM, not least why a rights issue to existing shareholders at ten times the proposed price isn’t a viable option. Who wouldn’t support that versus what’s on the table?

Natdan, you're not the first person on here to raise the possibility of YGEN being taken private. I've not experienced that before with any of my holdings, but I think you're suggesting that it would be accompanied by a derisory offer from whoever it might be who was proposing that. However, I'm not sure that means that any investors would have to sell at that price, they would only need to sell if they wanted to avoid continuing to hold without the liquidity that being listed provides. I hold shares in a number of private (unlisted) companies, acquired through participating in early stage crowdfunding. The shares cannot be easily sold at this point, but that doesn't mean that they are not growing in value - at some point I expect the shares to either be listed, or for an attractive offer to be made for the whole business, at which point I will receive the money from whoever buys it. Wouldn't it be the same with YGEN, we could just hold on to the shares and they would appreciate in value , but without a liquid market. There would need to be some kind of event (takeover, or relisting) that allows us to exit, but that's just a timing thing. I don't think it's possible for the BOD to say that they're taking it private and we must sell our shares to them? To force us to sell, there would have to be a takeover offer, which would be subject to all the usual rules of the City Code?