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Those who took my advice to short AIM Listed CPP Group (LSE:CPP) at 26.75p exactly a week ago will be able to collect their handsome winnings by tomorrow morning thanks to an after-hours announcement today. Oh happy days.
CPP ( Card Protection) had seen its shares zoom ahead on the back of an announcement of 28th October that it was in bid talks with an American company Affinion. However as I pointed out last week Affinion itself had sod all cash and stacks of debt and would therefore be in no position at all to make a bid for CPP ( which itself has balance sheet…er…issues”). The chance of a bid was in my view somewhere between Bob Hope and No Hope.
You can read up my prescient call in full here
What amazes me is that this data on Affinion was hardly a secret. It took me about ten minutes to find it and another half hour to analyse it yet now the whole world is surprised? Jeepers.
And so it came to pass at 4.33 PM today that Affinion said that it had no intention of making a bid. Oh dear. What next. With the FSA have just fined CPP £10 million and still crawling all over its regulated business and with contracts being lost left right and centre earnings visibility is zilch. Meanwhile the company has an £80 million debt facility (of which c£45 million is currently utilised) which lapses on March 31st. Now I know that banks are pretty daft but can you honestly see even the craziest bankster renewing that facility?
The company itself says: “As previously announced, the Board continues to assess and actively pursue a range of financing options. We are in discussions with our lending banks about the Group’s debt facilities which mature in March 2013 as well as considering a number of alternative financing and strategic options.”
Er you bet it is pursuing a number of options. Pursue all you like Charlie, actually securing a refinance may prove harder than pursuing.
What will the stock open at tomorrow morning? There was unusually heavy trade in the shares today and they closed off 5p at 20p. Hey but the announcement was posted after the market closed. Er, well nothing suspicious there at all is there. My guess is that 15p is first stop tomorrow. What is the company actually worth? Hell only knows as earnings visibility is nil and the balance sheet is a big issue. My initial target for when the bid (ho, ho. ho) approach went away was 13p. I reckon if you can close out at 15p or lower this should pay for Christmas or your annual subscription to my Nifty Fifty website with its weekly Short Letter full of other ideas like this. The next Short Letter is out on Friday. Or maybe tomorrow.
For two other FREE great shorting ideas from Tom Winnifrith in the TMT world click HERE
Libertarian investment writer Tom Winnifrith writes extensively for a number of US and UK financial websites. All of that material appears on his own blog, which also carries his extensive original non financial material, at TomWinnifrith.com – for alerts on all Tom’s follow him on twitter at @tomwinnifrith
