A rule change by the London Stock Exchange on cash shells that they must either do a deal before 1 April or have cash in excess of £3m to avoid being suspended has thrust these shadowy vehicles into the limelight as never before, says Russ Mould in Shares. But this has also created an opportunity.
Historically, cash shells have been a time and money-saving device for firms looking to list quickly. They also come with established (often experienced) boards, cash resources and good contacts with institutional investors. This means they tend to come at a premium (the 83 cash shells on the official list have a combined market cap of £380m, for example, but only £134m in cash).
But that doesn't mean they can't appreciate further. Over the past two years, cash shells have on average appreciated by 54% in the six months before making an acquisition. As the 1st April deadline ticks closer, so the pressure for deals is building.
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Investing in cash shells is risky: investors can see 1,000%-plus returns if they back the right one, or 100% losses if they back the wrong one. The most important factors are reliable management, a reasonable valuation and cash resources above the suspension threshold. Shares' five favourites are: Clerkenwell Securities (AIM:CRK, 6.5p); Concateno (AIM:COT, 91p); Gasol (AIM:GAS, 9.75p); Nettec (AIM:NTC, 9.6p); and Nettworx (AIM:NTWX, 10.9p).
Charles has previously written for the MoneyWeek, giving readers his share tips regularly and covering other topics on the side such as stock markets and the economy. He has also written for The Business, Shares, Investors Chronicle and The Evening Standard, and Charles has presented on LBC and been a guest on BBC One and BBC World. Aside from his journalist background, Charles graduated as a chemist from the University of Oxford specialising in ligand gated ion channels.
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