Bowleven – victim of insider trading?

By Ben Turney

Too many writers pussy foot around the goings-on in London’s Alternative Investment Market. This needs to change and something has to be done about this market.

Today there was an absolute shocker of an announcement from Bowleven (BLVN), but it was yesterday’s price action that has set alarm bells ringing.

I am convinced that there was insider trading of BLVN’s stock.

Before analysing what happened yesterday, let’s first take a look at today’s news.

In what turned out to be a raft of RNS announcements, the key one, as far as most private investors were concerned, was this release before the market opened. Coming immediately after an otherwise pretty lacklustre set of preliminary results, BLVN announced its latest fund-raising at a whopping 25% discount to the 90 day average closing price.

Companies do need capital to develop their projects and in the case of BLVN they apparently have assets, which can be developed (and, let’s face it, in the resource sector on AIM such genuine businesses are few and far between). However, irrespective of the commercial viability of its operations, this fundraising once again exposes the deep flaws running through this market and demonstrates how it is nearly impossible for anyone with a buy and hold mentality to make money out it.

On Monday, BLVN’s 90 day moving average market cap was £175.69million. I’ve used a 90 day moving average market cap as a rough approximation of the market’s estimate of the “true value” of the company. Of course, valuation on AIM is always treacherous and ultimately the stock is worth what people are prepared to pay for it. Even so, BLVN looked pretty strong.

How deceptive appearances can be.

According to the first announcement about the placement, BLVN hoped to raise £13.25million. For a business with a 90 day moving average market cap of £175.69million, you would have been forgiven for thinking this wouldn’t pose too many problems. A slight discount might have been expected, but 25%?!

Not only did BLVN’s board of directors slaughter their existing shareholders, they even failed to raise the full amount they were after. They only managed to place £11.77million. This spells further trouble for the company, even if Merrill Lynch’s book-building exercise is successful to obtain the remaining funds. BLVN is likely to need more money again next year and if you read the preliminary results (without the rose tinted glasses) it doesn’t look like there is much good news anticipated in the near future.

Perhaps you could argue this isn’t the board’s fault. All the usual defences can be wheeled out. Funding conditions remain tight, this is a difficult market, the BoD can’t be held responsible for the movements in the share price etc. etc. etc.

However, these are just excuses. Look at the five year chart and the clear lack of progress for BLVN is there for all to see. Shareholder anger at today’s announcement looks well justified and perhaps it is time for some heads to roll.

As bitter tasting as the terms of the placement are, this is not what has really bothered me. What has really got under my skin is yesterday’s troubling trading pattern. Take a look at the chart below and try to disagree with me that news of this placement not only leaked onto the market, but this also materially affected the share price:

Note the sudden 6.5% drop in the stock price, which “mysteriously” sent it to a 12 month low.

The FCA’s rules on insider trading can be found here. I will be forwarding a request to the AIM Investigations’ Team to do their jobs and investigate what happened yesterday. They should have access to the records of all trades made. Specifically I plan to draw their attention to Provision MAR 1.3.2 Points 1 & 2 concerning market abuse (insider trading):

“The following behaviours are, in the opinion of the FCA, market abuse (insider dealing):

(1) dealing on the basis of inside information which is not trading information;

(2) front running/pre-positioning – that is, a transaction for a person’s own benefit, on the basis of and ahead of an order (including an order relating to a bid)1 which he is to carry out with or for another (in respect of which information concerning the order is inside information), which takes advantage of the anticipated impact of the order on the market or auction clearing1,  price;”

Sadly, based on my previous experience of dealing with the AIM Investigations’ Team, I won’t be holding my breath expecting anything to be done. Their default response is that they cannot release market sensitive information, so therefore cannot comment on whether or not they investigate complaints. This is a perfectly contrived bureaucratic Catch 22, but before I start blasting them for this, let’s give them a chance to do their jobs.