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My last Spreadbet Magazine column

Tom Winnifrith
Tuesday 9 July 2013

Life is too short. I am making it simpler and so I have handed in my notice with immediate effect at Spreadbet Magazine to focus on this site, The Nifty Fifty, Shareprophets, UKInvestor Show and RMPC, working only with a small trusted team.

For what it is worth my last column published today read:

It is not as if most AIM directors are poorly paid but the poor dears also need, in the parlance, “incentivising” in order to deliver value. Hmm, welcome to the world of share options…

Is there any evidence that handing out vast numbers of share options to AIM boards actually pushes them to deliver any added value for shareholders? I very much doubt that there is. If directors want to be really incentivised to deliver value for shareholders they should part with real hard cash and buy stock in the market something I know the former editor of this magazine agrees wholeheartedly with. Merely giving themselves one way bets via options really does not cut ice.

But the fiddle gets worse. Firstly there is the price at which options are set. I bring you a little company called, yes, you guessed it - Sefton Resources. You may have heard about it – it is the one that told investors on March 5th that its output had gone up, issued new shares on March 6th and then ‘fessed up that output had fallen. It is suing me for libel for saying that it misleads investors.

It announced the other day that it had issued options on shares which would equate to just under 5% of the issued share capital at 0.65p with a 5 year vesting term. The shares were at that point 0.51p. In other words if Sefton can over the next half decade deliver compound share price growth which is 2% less than the long term average of the stockmarket ( or 2% more than inflation) then directors will get free money. It is hardly a challenge is it?

Set that option price at 0.9p and I would have been more impressed. Hell, set it at a realistic level of 5p which is where they were many moons again and I’d have taken my hat off to Jimbob.

Then we come to the second fiddle. You see the main two honourable gents who run Sefton already have a stack of options – this tranche merely doubles up. The old options were however at 3.5p and so clearly they are worthless. So, all Sefton is doing is repricing by another name the options issued to its managers.

Some are more blatant than this. I note a piece on Shareprophets today by the excellent writer Doc Holiday out today on a company called Orogen (ORE) in which he flags how the directors simply re-priced their options pre-Christmas. The shares had – under their stewardship – tanked so they just changed the strike price. As it happens, Orogen shares have tanked again since Christmas so I guess the options need to be repriced once more. Of course ordinary shareholders cannot reprice what we pay for shares with real cash. It is only, in the one way bet of share options, that repricing or covert repricing a la Sefton is par for the course.

If shares in Sefton fly (they won’t in my opinion), the new option package will be highly dilutive. If they do not fly the directors have not lost a cent. Please can someone explain to me how such arrangements align the interests of management and ordinary stockholders?

As of now such opinions will be restricted to this website and www.shareprophets.com

 

 

 

 

 

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About Tom Winnifrith
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Tom Winnifrith is the editor of TomWinnifrith.com. When he is not harvesting olives in Greece, he is (planning to) raise goats in Wales.
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