Disclaimer: Shareinvestors is not authorised by the Financial Conduct Authority to give investment advice. Terms such as ‘Buy’, ‘Sell’ and ‘Hold’ are not recommendations to buy, sell or hold securities, these statements and other statements made by the author have the meaning only to express the author’s personal views on the quality of a security. Independent financial advice from an authorised investment professional should always be sought before making investments. CAPITAL AT RISK. Full Disclaimer here.
I wrote about Cloudtag earlier in the year and called this out as a SELL at the time. I was almost 100% down on my SELL call at one stage this autumn, however since then a very interesting financing arrangement has been entered into by Cloudtag. There has been some very good coverage of this agreement at Share Prophets so I won’t go over this again. However this financing agreement has seen the shares drift down from 20p at the October peak down to below 6p at the start of the month. This week though they exploded into life again jumping 166%, from 6p to 16p. After falling back somewhat again after two mid week ‘speeding tickets’ an announcement was made by AIM today that Cloudtag shares were suspended with immediate effect. Full text:
Trading on AIM for the under-mentioned securities has been temporarily suspended from 9/12/2016 3:26pm pending an announcement.
Speculation reached a frenzy on social media whereby everything from a Joint Venture with a Chinese mobile phone company to the Serious Fraud Office kicking CloudTags door down was speculated upon.
A hint may have been given though right at the close of the RNS day, a conversion notice was received in respect of the convertible loan notes as follows:
CloudTag (CTAG:LN), the company that brings personal monitoring to the wellbeing, fitness and digital health markets hereby announces that after market closing on 7 December 2016 it received a notice of conversion in respect of £1,150,000 of Tranche 1 Notes (based on the nominal value of such notes) issued to L1 Capital Global Opportunities Master Fund (“L1”).
The conversion of £1,150,000 of Tranche 1 Notes at a conversion price of 6.0 pence per Conversion Share (“Conversion”)
The plot thickens, Cloudtag has been sitting on this information for 48 hours, the notes were converted at 6p and yet the stock was allowed to open on December 8th at 15.25p, 2.5x greater than the L1 exercise price. L1 has made a killing here but that is not the primary issue actually even though it feels so immoral, 19m shares are to be issued as part of the conversion, i.e. almost 5% of the total shares in issue. This is a material amount and under AIM Rule 11 the market should have been notified immediately, i.e. as soon as Cloudtag knew – i.e 8th December 7am. Many questions, why did it take 2 days to notify the market? Was this deliberate or something more sinister? Is this connected to the suspension of the shares? It is very interesting to note an EGM on Monday morning (12th December) where resolutions are put forward to increase the authorised share capital to allow for further tranche of the convertible to be issued.
So Is there a connection between the conversion and the suspension?
My feeling is yes, but we will need to wait until at least 7am on Monday. Shares are generally ‘suspended pending an announcement’ for breaches of AIM rules or in order to comply with AIM rules, i.e. NOMAD quitting, directors quitting or an activity constituting a RTO. Another reason is potentially a credible leak of information which needs clarification, i.e. to prevent ‘those in the know’ from profiting. Any other price sensitive information should be released via a standard RNS and should not require a suspension. So why the suspension in this case? For the bears – In the case of cloudtag there have been a number of well documented Red Flags and the NOMAD could have decided to go if it feels it can’t act for Cloudtag. For the bulls maybe not – there is a new product launch due in a week, could it be that product details may have leaked?
I would probably land on the former rather than the latter, if the announcement relates to the product I would have thought a holding statement would have been put out. Why make shareholders suffer over the weekend? Also twice this week Cloudtag has stated in RNS that it is aware of no further news not in public realm. Bearing in mind most of the City is getting lashed at Christmas parties around EC1, it must be something very significant. That said I wouldn’t be popping the champagne if I was a short just yet either.
Cloudtag is an immensely popular retail stock and I hope genuine holders do not get burnt, especially so close to Christmas. One thing for sure this whole episode promises to be nothing short of a pantomime.
Final point just for information; here is the fate of the last 5 companies where an unexpected AIM ‘pending an announcement’ RNS has been put out…
Disclaimer – I have no positions in this stock and to my knowledge nor do any close family, friends nor associates. This post is purely my opinion and should not be taken as financial advice. I welcome any alternative comments and will consider adjusting posts based on information made available to me.