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techfinancials Joint ventureShare Price ‘Soars’

Every now and then a headline is so misleading, in this case concerning the TechFinancials Joint Venture, that you have to wonder at the veracity of the rest of the message.

The headline in question:

‘TECHFINANCIALS SHARES SOAR AS IT AGREES ASIA PACIFIC JOINT VENTURE’

provided by Hana Stewart-Smith of Alliance News Limited

Below are graphs from the London Stock Exchange web site which show the TechFinancials share price over the last month and since the IPO.

TechFinancials Asian Joint Venture

TechFinancials Share Price (Last Month on Left, Since IPO on right)

The sharp down turn yesterday, the 20th October, shows the share price falling to a lifetime low of 10.5p (although the stock exchange records show the lowest trade yesterday at 10.85p) which equates to a mkt. cap. of just £7.16m (or £7.4m). The shares closed ‘unch’ on the day at 14p (£9.55m) last night.

‘FROM A LOW OF 10.5p TECHFINANCIALS SHARES SOARED 33% TO CLOSE UNCHANGED ON THE DAY’

 might be a slightly more accurate assessment but, hey, why let a good headline be distorted by ‘smoke and mirrors’?!

In their press release was also the little gem:

“Shares in TechFinancials were up 42% at 14.95 pence Wednesday morning, one of the biggest gainers on AIM.”

Oh dear!

TechFinancials Joint Venture

So, what triggered this TechFinancials feeding frenzy? According to the LSE RNS Number: 8957C TechFinancials:

“…has entered into a Joint Venture agreement with the owners of Optionfortune Trade Limited, a company registered in Hong Kong which will run a B2C binary options trading platform focused on the Asia Pacific region.”

TechFinancials will own 51% with ‘the Partner’ owning the balance.

Optionfortune

Optionfortune has been using TechFinancials technology to run an Asian-focused binary options platform since 2013 and this year has generated average monthly volumes of US$8.56m.

Unfortunately that volume has generated just US$350,000 in average monthly revenue this year which amounts to a profit margin of just 4.1%.

The Joint Venture Structure

From TechFinancials website:

The Partner will transfer its trading platform activity and all other intangible assets related to its operation to the JV. Assuming the JV produces US$2 million of net profit in calendar year 2016, TechFinancials will issue to the Partner’s shareholders a number of TechFinancials Inc. shares held in escrow worth US$1.54 million, at a price equal to the share price at the time of TechFinancials admission to AIM (27p), or the average price over 30 days prior to the closing date of the JV agreement, whichever the higher. If net profit in the JV is below US$2 million, the final number of TechFinancials Inc. consideration shares will be calculated and adjusted proportionally based on the audited profit of 2016.

If the JV’s net profit and revenue in 2016 exceeds US$2 million and US$4 million respectively, and provided profits in 2017 are at least 90% of net profit in 2016, TechFinancials will make an additional payment, at its option, in either shares or cash, worth 171.5% of the excess of net profit over US$2 million in 2016.

In the event that the net profit for the 2016 is less than US$600,000; and/or  revenues are less than US$3 million, TechFinancials may elect to transfer to the shareholders of the Partner, effective on 1 January 2017, 38.5% of the shares in the JV, instead of payment in TechFinancials Inc. own shares.

In addition, TechFinancials will provide a loan of US$0.5 million to the JV whilst the Partner will provide a loan of US$0.3 million and will transfer the balances of its brand customers.  The total loan of US$0.8 million is repayable on a quarterly basis, subject to cash in the JV increasing above the initial US$0.8 million of cash provided by the parties, until it’s fully repaid.

There are too many questions that require answers before any worthwhile assessment of the deal could be made:

  1. ‘Net Profit’ – how is that being measured?
  2. ‘TechFinancials will issue to the Partner’s shareholders a number of TechFinancials Inc. shares held in escrow worth US$1.54 million, at a price equal to the share price at the time of TechFinancials admission to AIM (27p), or the average price over 30 days prior to the closing date of the JV agreement, whichever the higher.’ This statement is so ambivalent and nonsensical as to be worthless. Why is the value of them now and the price issued to the partner relevant? How is the value of them now calculated, i.e. at what TechFinancials share price and at what USD/GBP exchange rate?
  3. ‘….TechFinancials will make an additional payment, at its option, in either shares or cash…’ My best guess is that if the option refers to making an additional payment then TechFinancials might not make it!

Maybe Northland Capital Partners or Grant Thornton would like to elucidate?

Current Price

As I write the market makers this morning are quoting 12p/16p and just two small trades have taken place at 15.5p.

The TechFinancials platform is possibly one of the best out there with 24Option, one of the biggest brokers, endorsing it. A valuation of below £10m seems incongruous bearing in mind the number of white labels TechFinancials boasts. Yet one cannot help but feel that TechFinancials are bailing out Optionfortune out of necessity as opposed to pouncing on a great opportunity.

Either way, those of us with a vested interest in the success of the binary options market need TechFinancials to flourish as it is the only operator as yet that has placed itself in the public limelight by going for a listing.

 

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