The structure of this company looks incredibly risky. If I may speak frank nobody is at arms length in this arrangement and the company highly favours Roger Sexton’s pockets.
BFC never actually directly manages any of the underlying investments in family or privately owned entities. They also only have partial holdings in the entities. Essentially, this means the company is an investment firm specialising in Agriculture rather than a company ‘operating in the Agriculture sector’ so to speak. This is an issue that will be raised later.
Naturally, BFC would seek advice in making these investments. The advice is solely provided through an ‘Investment Manager’ BPAM.
This is the catch.
Roger Sexton has direct interests in and sits on the board of the ‘Investment Manager’.
The Investment Manager is remunerated through a management fee equal to 1.20% of the Portfolio Value and a performance fee of 17.5% of the market capitalisation of the firm for shareholder returns that exceed the ASX All Ords.
Just to put in perspective, if the company started trading at $0.32 and is currently at $0.48 this is an increase of 50%. Let’s assume the ASX did not fall this year for ease of calculations. Let us also assume this company has a market cap of $170M for ease of calculations. This means the company owes $170M x 17.5% x (50% – 0%) = $14.87M in performance fees to the ‘Investment Manager’ this year alone.
The conflict of interest is huge.
Not only that, but the performance fees are related to total shareholder return and not the underlying asset performance. This means accounting manipulation and ‘pump and dump’ style techniques to elevate the stock price directly benefit the ‘Investment Manager’ (and Roger Sexton) through indirect fees. Whether the company is actually ever profitable will be completely irrelevant until this (most likely) goes bankrupt. This can all be done without selling a single share and not being obvious to the market.
My point is it is very important when capital raising occurs to ask the question why raise the funds? The Investment Manager seems to be doing majority of the work so why don’t they just invest directly? Why create this company called Beston Global Food Company that actually is just an investment firm taking advice from another investment firm?
The answer is: it redistributes the risk of this investment. Roger Sexton and the promoters involved will receive excellent payouts with much less risk on the table than the ordinary shareholder. They are using the company as a vehicle to invest other peoples money for an above average return for themselves.
This may make money and work out. But while the board gets rich you will only make a margin of the reward for the risk that this investment brings.
I have not looked into this company much at all but this issue was rather glaring. Hence, this is just my quick analysis which may need further investigation. But from my experience I would definitely avoid this stock. The risk is not worth the reward unless you are the promoters.
(20min delay)