Every day there are hundreds of RNS statements, containing millions of words, produced for Stock Market listed companies. At Aimzine we have a ‘long short-list’ of around 300 exciting small companies where we endeavour to read all of the important news items. Every now and then we come across an RNS which is truly exceptional. For example, a tiny company with a low turnover may announce a significant contract with a large multinational.

In most cases significant news will have a pretty immediate affect on a company’s share price – our tiny example company would expect to see its share price rocket on the day of its new contract announcement. However, just occasionally, significant news is not acted on by the markets. This could be because the news item is complex or perhaps because there are so few people that are aware of the information.

At Aimzine we are introducing a new feature this month which we are calling ‘AIM Snippets’. In these ‘Snippets’ we will feature an RNS news items which we believe is Interesting or unusual and which may interest investors. As always we are just providing information and comment. We will never recommend that readers should buy or sell a particular share. We cannot promise an AIM Snippet every month but we hope there will be one published most months. If the Snippets prove popular we may make these available as a by-email service. For now, here is our first AIM Snippet concerning Retec Digital.

Retec Digital

On 23 January AIM-listed Retec Digital announced that it proposed to De-list its shares from the AIM market. There have been a significant number of companies in recent months that have taken a similar path. Some have given the impression that they simply could not survive in business whilst they are incurring the costs of a listed company.

However, we believe that Retec’s statement indicates that they are a somewhat different case as their business seems to be developing reasonably well. In particular, the directors give four reasons for their de-listing. These are:

• The Group has grown organically and from targeted acquisitions during the last three years and yet the market capitalisation of the Company is lower than when it came to market in September 2006; 

• Retec Digital, like most other small listed companies, suffers from a lack of liquidity for its shares and, in practical terms, a small free float and market capitalisation, which reduces demand. This low liquidity is coupled with the high costs associated with our listing on AIM (approximately £150,000 per annum); 

• The current economic turmoil has led to significant falls in the values of global stock markets, from which Retec Digital is not immune. The stock market tends to operate on a short term investment horizon which has little basis in the underlying fundamentals of a business such as Retec Digital. The susceptibility of the share price to the wider general equity market conditions is not to the benefit of the business and in particular hampers the Group's ability to raise funds and continue its targeted acquisition strategy; and 

• In the opinion of the Directors, the most likely exit route for Shareholders will be via a trade sale within the next two to three years as the visibility of the business grows amongst potential acquirers. The Directors believe that the proceeds from a potential trade sale will be maximised without reference to an underperforming share price.

Retec are a marketing services company who provide software and services to large retail organisations. Their customers include Boots, Tesco, Morrisons, Sainsburys, Argos and Debenhams.

Retec has grown organically and by acquisition such that turnover has risen to £6.2 million in the year to June 2008. By this date the company had almost reached a breakeven level.Whilst the company has reported that their organic growth has slowed recently the Directors state in the 23 January RNS that they are still cautiously optimistic about the next 12 to 18 months.

Despite making reasonable progress with their business, Retec have seen their shares in decline for the last year and the de-listing announcement prompted a further sharp drop. At the time of writing the shares are quoted Bid: 0.25 : Offer: 1.0 pence, although shares are trading well within the spread.

if they achieve

these ambitions

there could be

considerable gain here

The AIM market, often driven by many small investors, has become extremely short term focussed and a company delisting always invokes further selling. However, investors with a longer term horizon and an appetite for risk may consider that these shares may have reached a level where the risk/reward ratio is favourably tilted to justify investment here.

 The directors are obviously hoping to sell the business in a few years time for a lot more than today’s value. If they achieve these ambitions there could be a considerable gain in prospect here. However, if the EGM on 10 February votes in favour of a de-listing, shareholders would need to be prepared to hold shares without a Stock Exchange listing for a number of years. 

We must stress that it may not be possible to sell Retec shares at an acceptable price for some years. Further, Retec is a small company and there is no guarantee that it has a long term future at all. Optimistic Directors are not always a reliable indicator!

If anyone wants to find out more about Retec and its de-listing we recommend the De-listing RNS and the 2008 Final Results as a good start point.

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The author of this article holds shares in Retec Digital

Written by Michael Crockett

Copyright Aimzine Ltd

RETURN TO AIMZINE NEWSLETTER HOME | February 2009

..optimistic directors

are not always a

reliable indicator!