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Just a quick comment on the roller coaster that was the FITBUG share price this week and what lessons in my view need to be learnt by companies, market participants and advisers alike. The sorry saga I refer to started before market open on Wednesday this week, when the company released this RNS Reach(RNS-R):
Fitbug Holdings Plc, the AIM quoted digital wellness technology provider for corporate organisations, today announces a customer win with a global financial services group in Asia…
Fitbug has secured an initial 1-year corporate wellness programme, which includes ongoing service revenue, together with an order for 14,000 device”
The release was brief and with no financials to support the statement, but on first glance looks impressive, a major customer and 14,000 devices, that is until you remember this was a RNS-R and by definition non price sensitive (more on this later). This statement nonetheless saw the company shares rise over 550% at their peak on the day, at one point topping out at 1.07p on an open of 0.2p. The shares were finally suspended at request of the NOMAD, but not until 3:30PM on the same day, with Fitbug being forced to clarify its trading position. This happened yesterday afternoon here. The company revealed in that update an expectation of lower revenues and continued losses, albeit slimming them modestly vs. prior year. The real crusher though was the future guidance relating to yesterday’s Contract win.
The Board expects this contract to provide in the region of £60,000 in ongoing service revenue in 2017.
So when you add in costs to service the contract the actual impact on Fitbug’s current and future earnings will be minimal, if not nil.
The market quickly adjusted and the shares are now swapping hands at 0.35p, so those who bought in at peak would be sitting on 60% losses as at today. The whole affair really in my view demonstrates the worse of the AIM market and lessons need to be learnt.
How it could have been all avoided
This all boils down to poor communication, which started with the announcement being made via RNS-Reach (RNS-R), which is a non-regulatory news service, in other words a platform used for communicating non price sensitive information. RNS-R can be used for example to communicate broker research or investor presentations, as was this case with Zenith Energy here. It can also be used by non-listed entities to communicate to the market, for example prior to IPO. You can see recent releases made by RNS-R here to give you a flavor of what it is used for. With this in mind here are three ways this sorry mess could have been avoided:
Given this was a RNS-R, any rational investor would have limited reason to buy the shares. However herein lies the problem, AIM is dominated by retail investors and a large % of which are not familiar with the difference between RNS-R and RNS. Hardly anyone had picked up on this subtle fact when I looked on the bulletin boards and Twitter during the peak madness yesterday. Let’s also remember that this contract/release would have had an independent review too, NOMAD’s need to review all releases to market, if it was material release then Fitbug would have been instructed for the release to go via RNS. My belief therefore is that all RNS-Rs released which contain contract news or similar should be labelled for absolute avoidance of doubt as ‘this release is not considered price sensitive’ by the company or even better by service provider LSE automatically.
The release had limited information which lent itself to fevered speculation. If releases are not clear and explicit this can lead to users speculating on the missing gaps, this is compounded by the increasing use of social media to comment on small caps. Fitbug knew that the contract was not material but chose to be very vague on the detail. I accept that the terms of some contracts need to be kept confidential for reasons of commercial sensitivity, but the company could have stated either that ‘this contract win does not alter guidance given to the market’ or is not ‘expected to have a material effect on the trading or financial position of the company’. Fitbug may well say this was a RNS-R so it shouldn’t need to, but then I return to my first point and I still think there is a duty of care to shareholders here.
The shares were suspended 7 hours into the trading day. Why did it take so long? Whatever excuses the company has for putting out an unclear release, what I really fail to understand is why the brakes were not put on this as soon as the share price reacted 20%, let alone 100%, 200%, 300%, 400% and 500%. This again lands mainly in my view in Fitbug’s court, but also with the NOMAD and AIM regulation.
You will probably call me Captain Hindsight or you might think I am in dreamland given how the AIM market operates at times. I’ve singled out Fitbug here but the reality is that they aren’t alone and I’m also not for a moment stating there was any deliberate intent here, but things need to improve.
I also don’t know much about Fitbug so I won’t comment further on whether this is a BUY or a SELL, one thing I will say though is that it looks like shareholders can expect a cashcall in the near future, with the cynic in me thinking this was a pre funding marketing exercise which backfired…
“The Board remains mindful of the funding needs of the business moving forwards, particularly with the Company’s corporate wellness growth strategy, and will continue to keep this position under review.”
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.