Whatever the terminology, I don't believe that it is worth the paper it is printed on. I provisionally arrived at this conclusion from page 3 of the prospectus, which spells out that of the £600,000 being raised, only £390,000 will go to the company. The rest will be dispersed in professional fees and other expenses connected with the issue. If only two thirds of the investors' money is actually applied to the business at hand, the company must achieve 50 per cent greater success with the funds at its disposal than a company which raises funds directly. In a competitive world, that is a mega-hurdle.
As I read on, my convictions firmed up. Beautiful is a publisher of traditional books, audio books and music downloads. Between starting business in 2005 and earlier this month, it raised £400,000 in cash via share issues, a net £86,000 in bank loans and £36,000 via directors' loans (these loan figures are as of its balance sheet date, June 2008). So that was £522,000 of cash in.
Of this, as of June 2008, there was just £12,000 left. The rest helped to meet Beautiful's trading losses over the two years of £512,000 and the £153,000 it has already spent on professional and other fees in connection with the earlier share issues.
Such losses are part and parcel of commencing a publishing company from scratch. But there is no immediate sign of the loss turning to a profit. In the six months to June 2008, Beautiful doubled its sales to £213,000 compared with the preceding six months, but the gross profit generated (after distribution costs) was just £70,000. This made only a small dent on Beautiful's overheads and other administrative expenses, which came to £445,000 in the six months. This figure does not include those fund raising costs, which were charged straight to the balance sheet.
So, Beautiful needs money and needs it fast. You'd expect the terms to reflect this, especially since this is the second attempt this year to raise the £600,000. The first effort, for which the price was 12.5p per share, was closed down after it had raised £265,000. Nevertheless, this time round the company is being valued at 15p a share, or 20 per cent more than the figure applied a few months ago. You need a bold stockbroker to make that sort of decision.
In return for throwing The Beautiful Group this financial lifeline, the clients of Wills & Co are receiving just 21 per cent of the company.
The prospectus reveals that Peter Shakeshaft, a director of Wills & Co, owns one million shares in Beautiful, which he bought from the company's previous financial advisers. In my view, the prospectus - sorry, non-prospectus - ought to reveal what he paid for these shares and commit Mr Shakeshaft to hold them for 12 months. I quizzed him about both matters but he was non-committal.
I also spoke to Beautiful's founder, Simon Petherick. There is no doubt that he is a man on a mission to build a successful publisher and that he has achieved some successes. Three or four of the titles he has published have attracted quite a bit of publicity in the book trade. But how you turn £390,000 of investment into the four or fivefold increase in turnover that will begin to cover Beautiful's overheads… before the money runs out… as to this I gained no insight from him.
Why would anyone invest in this company, which is surely going to need another great dollop of money within a few months? Perhaps they would be persuaded to do so by the Wills & Co sales team. However, it is worth noting that Wills' exploits in the penny share department last year resulted in a £70,000 fine (reduced to £49,000 on account of being paid in good time) from the Financial Services Authority.
The FSA would have done Wills' 15,000 clients a much greater service by requiring it to distribute that judgement to them. And to require all prospectuses or quasi-prospectuses, especially those aimed at the uninitiated, to be accompanied by a record of the success of the previous issues sponsored by the promoter.
