By Graeme Davies, 16 February 2012
Two of the most popular retail punters' plays on the Alternative Investment Market (Aim) are suffering wildly contrasting fortunes right now. Tanfield, once the darling of the Aim market, looks to be close to rehabilitation after putting its investors through a rollercoaster ride over the past few years. In contrast, more recent Aim darling Pursuit Dynamics is still travelling south at pace after a torrid year which has seen its shares lose 80 per cent of their value.
At the beginning of this week Tanfield announced it was raising £12m at 41p a share, only a minor discount to its prevailing share price. The fund-raising went off without a hitch and the funds will be used to ease working capital pressures and improve the supply chain as Tanfield’s core aerial access platform market shows signs of picking up. The company’s order book rose over the second half of 2011, giving management confidence to seek funds from investors.
Tanfield has also received funds in recent months from its interest in the Smith Electric Vehicles US business (SEVUS). This was the business into which Tanfield transferred its share of the Smith electric vehicles venture when management accepted it was becoming too much of a drain on resources to wait for the 'jam tomorrow' business to come to fruition. It received a chunk of paper as well as some cash for its interest and has already received some $5.6m (£3.6m) deferred consideration and seen the Americans successfully raise $40m for the business this week, which gives it some hope of success. Tanfield still has a 24 per cent stake in SEVUS, which could prove valuable in the long run.
Contrast this with the position at Pursuit, whose suite of technologies primarily offers more efficient processing of liquids. It has conducted extensive trials in the ethanol, brewing and food production and decontamination industries, and with heavyweight names too. But commercial contracts have been difficult to tie down and late last year it announced what was basically an emergency rights issue at half the prevailing share price to raise more than £9m to support commercialisation of the technology. The prospectus for the one for eight issue is expected by the end of this month and if this doesn’t happen then investors are likely to get very jittery indeed. Already heavy short selling activity has seen Pursuit’s share price collapse to 85p, well below the mooted 100p rights issue price and a pale shadow of some of the price targets the City’s analysts were slapping on the company a year ago.
The year to September 2011 saw Pursuit generate revenues of less than £500,000 and post a loss in the region of £15m and it ended September with £7.3m in the bank. It doesn't take a genius to work out why it needs another £9m and probably then some. Management is sticking to its forecasts of £22m of revenues for 2012 but if its current situation is left to drift any more, and it remains without a permanent chief executive, then it will be increasingly difficult to persuade potential counterparties of its ability to service contracts.
True, a successful fundraising may buy Pursuit the breathing space it needs to get through its current trough. Its technology has attracted interest from some major players in some major industries but it has to be careful now not to end up as another of Aim’s nice stories which failed to realise its potential. Should it succeed in raising funds and bringing in anything like the £22m of revenue during the coming year then the shares could rebound fast. It’s quite a big if, though.
As for Tanfield, it was lucky that key shareholders supported it through the worst moments, but it was also lucky to have a bread and butter business to fall back on when its blue sky efforts hit the wall. It still has a way to go, but Tanfield looks to be on more solid ground once more and if management remain focused and try not to run before they can walk they may be able to complete the turnaround.
