Dreamcatcher1 Its a mixed bag - From what I have experienced and...

Dreamcatcher1 Its a mixed bag - From what I have experienced and heard from others this is the problem:

In the big end of town the large stocks tend to be able to cope as many of the SOPH's are already shareholders. Generally they also use the likes of Macquarie so the placement gets into the larger investment houses and real insto's.

Then you get the companies above $100million or part of the mid tier range - They seem to be okay as well but if too many or a too large raising is undertaken they can have overhang issues. ERM power would be one that I believe raised too much. They raised $60million on 11 June 2013 and had an SPP and then in early November 2013 raised $75 million. Prior to raising the first tranche they had a market cap of around $300m - Thus they raised $135million or around 40% of their market cap. When the first hiccup occurred in their MacGen bid it started tumbling and its only now stabilised with I think many taking losses as well - their share tardes currently at a 29% discount to issue price. I have spoken to management they don't understand the reason. What the price drop did was to destroy their market cap and probably any chance they had for a shot at the MacGen assets as their market cap has been destroyed.

Then we get to PGC - Not even a small cap but a Micro cap. They raised around $3million in May 2013 and in November 2013 another $6.7million So almost $10million. They suffered the same problem - essentially also trading around 28% below cap raising price. At the time of the November raising I spoke to management just after it was all done and they told me they could have placed a lot more. So why the fall and what are the behaviours of the SOPH's ?

Both companies has DRP's.

In both cases SOPH's also are measured against the market so the normal tax burden pressures exist as they do with any investor who sells shares at a profit or loss. So I think the tax loss situation exists for any entity that has to pay taxes,.

The issue in my opinion goes to the process of the fund raising.

The lead broker gets paid around 5%.  Then remember many of these boutique brokers also have an associated FUM business. So by recycling their clients funds into and out of placements they get the 5% from the company SOPH is happy if its sold at a profit and then they can recycle the cash ready for the next opportunity. Remember a broker gets paid around 0.1% fees on acting as agent to a sale / purchase of shares versus the 5% as capital raiser.

So it is how they promote it and what the SOPH sees as the opportunity. If its not a stock they see as a part of their portfolio longer term they may seek to get out if it does not meet their objectives. In reality CCZ had not as I understand it been involved with PGC for very long - The Longer term relationship is with Halcyon - they are much smaller and more boutique. So CCZ did obviously what as I understand they were mandated to do raise the capital.

Here is the conundrum - If you only give large parcels then you are vulnerable to a few people one or more of whom may well sell and thats a concentrated sell - or you spread it wider and many will say I didn't get a meaningful stake so are also uncommitted and may sell just because tracking a company and its performance costs money. That is why many wont even look at companies under market Cap $100million. That is because a holding of $1million is 1% and that costs the same as an investment of say $5m in a Billion dollar company to manage.

So if they all or some decide to sell then you have an overhang. As I understood it there was a large holder who sold - however I think that there were a whole lot more that had sought the exits over a number of months but that by the time the last big parcel arrived for sale all the demand had gone home. It was / is the last straw that breaks the back. Much like EPW ( ERM Power) the steady volume kept pushing and pushing and one day it just got more and more painful.

Who do you blame ?- Well I looked at CCZ and they list their clients - at no stage was PGC listed as one of their stocks they produce analysis for on their website. In fact PGC would have had to be classified as Misc. herewith link:
http://www.ccz.com.au/research_analystsstock.html

In the end there had to have been a mismatch between the broker / PGC and the investor. Or was it the problem that existed as a result of the half year? Nothing in the presentation made at the time suggested that the half year was an issue. well in my opinion it was - it deferred revenue and that impacted upon the perception, however as they retained their guidance I am surprised that SOPH's would have changed their view. However from the release of the half year and a bit before their was a steady stream heading to the exits.So my gut feel is that there were stags in the placing who were going to take the profit however small and recycle their cash.  That portion I blame CCZ because they knew how little volume trade this share has. However that is what they do.

Then I think that management are also to blame because existing shareholders had an expectation (or they should have had) that management would have made sure that the parties understood the objectives of the company and were onboard.

So the SOPH's in my opinion would have stuck if it held its issue price but a lot would be selling to take up their tax loss and probably wont be back. That in my opinion is directly related to the inability to explain the opportunity properly and place the shares in those hands that see the opportunity as many do on this forum.

Do you blame management or CCZ - I think they both carry portions of it. If I was forced to apportion blame it would be 30% PGC and 60% CCZ and 10% the SOPH who pretends they like the opportunity only to sell as they get their shares.

These are my opinions and are purely that a personal opinion on the events that transpired here. Do you own research - Do not confuse my posts as anything more than that an opinion - if you want investing advice seek out the professionals - I am not one of them just an investor.