RE: Turn in the wind?26 Mar 2024 21:06
Hardman report:
From recent Hardman report:
Genedrive
As the old saying goes: “if it is difficult to understand, it is almost certainly detrimental
to shareholders”. Never has this been more true than in the case of Genedrive (and
more recently, Sareum). Although I accept that the board was probably in a difficult
position with a shareholder list of mostly retail investors, but desperate for cash, the
loan facility announced in March 2023 with Riverfort Global Opportunities PCC Ltd
(Riverfort) is extremely complex. After more than 35 years as an analyst, I consider
myself reasonably financially literate. However, I can honestly say that I have read
this agreement at least 10 times and I still do not fully understand it!
In summary, Riverfort made £5m available to the company. £2m was drawn down
immediately with the remaining £3m available for £0.3m monthly drawdown subject
to certain conditions being fulfilled. The loan capital is being repaid through the
issuance of new shares to Riverfort priced on a specific calculation (reference price)
and can be sold in the market, based on a series of conditions related to daily
volumes traded. On each drawdown, Riverfort also receives warrants equal to 40%
of the drawdown at the recalculated reference price, exercisable at 140% of this
reference price. The following table shows what has happened to date.
In my opinion, this deal is very bad for shareholders. To date, the issue of shares to
repay the loan capital represents dilution of 32.3%. The main reason for this is that
Riverfort is not a long-term shareholder, as evidenced by the fact that it sold down
its holding of 6.5m shares received in April to only 2.95m (-55%) by July. Even
though it has received more shares, its holding is not disclosed as being >3.0%
declarable threshold. Therefore, it is continually selling shares, which, in turn, causes
the share price to fall, making the next drawdown even more expensive.
Based on the current share price, Genedrive will need to issue an estimated18.25m
more shares and a further 8.0m warrants, which would provide the potential to raise
another £0.85m. dilution of 56% and in the
event that all the warrants are exercised, this would increase to 78%, but potentially
raise a further ca.£2.8m. However, given that most of the warrants are out of the
money, there is a high probability that the warrants will not be exercised.
Amazingly, Sareum announced a similar deal with the same investor in November.
On the evidence of GDR, guess where the share price is going!
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