Derek Pain: All change at RSH as it prepares for the switch to AIM

No Pain No Gain

Dramatic changes could be afoot at Rivington Street Holdings (RSH) the financial and software conglomerate which is arranging to switch its shares from the fringe Plus trading facility to AIM, the Stock Exchange junior market.

The group, recruited to the no pain, no gain portfolio 15 months ago, is undergoing a strategic review that, I understand, could influence its direction and shape. Indeed, when RSH arrives on AIM later this year – the transition appears to be taking much longer than originally anticipated – there is a possibility it will bear little resemblance to the present Plus-traded vehicle.

It would seem that the move towards AIM and the intended sale of the corporate finance side have prompted the group to embark on a far-reaching reassessment. The AIM adventures has forced RSH to adopt the International Financial Reporting Standard (IFRS) of accounting, underlining, in the company's view, that its shares are substantially under valued by investors. When the portfolio descended on the shares they stood at 27.5p. Subsequently, much to my joy, the price topped 50p. Now it is 28.5p, capitalising the company at £11m as opposed to approaching £20m in the more halcyon days.

RSH recently produced its yearly figures. Thanks to IFRS they were not quite the Christmas present I expected. Although revenue was up 169 per cent at £16.7m with gross profits 147 per cent higher at £10.7m, the bottom line figures were devastated by a £2.7m goodwill impairment that helped to produce a pre-tax loss of £260,000 against a £352,000 profit.

Tom Winnifrith, RSH's director-founder, complains: "IFRS is cruel in that you must write down the carrying value of any assets where you think a write down may be prudent but cannot write up any values."

Therefore the loss stems largely from non-cash adjustments that would not have materialised under the accounting procedure the group previously adopted.

Mr Winnifrith believes the expected sale of RSH's corporate finance side demonstrates the "absurdity" of IFRS accounting. Agreed price for the disposal is £3m. Yet the book value is only £681,000. And, of course, it is the much smaller valuation that features in the accounts.

Hence the operations review. Are there other businesses within RSH that could be sold well above book value? Mr Winnifrith stresses that no sell decisions have been made, although he adds: "What is the point of a share quote if the stock market is not valuing the shares properly. You've got to do something about it."

The group's spread of interests embrace such diverse activities as internet media, including the widely followed share tipping website, online stockbroking – claimed to be the cheapest in the land – and fund management. It also runs the JP Jenkins trading platform for shares of unquoted companies and a variety of software operations and has public relations and conference interests.

In 2010 the group, which dates back to around the turn of the century, expanded quite rapidly. The past year has been more of a consolidation exercise.

RSH has just completed a private placing at 25p a share which pulled in £1m. The corporate deal, when completed, should add to its cash pile, although it is mostly in 8 per cent loan notes and the cash inflow could be a rather long-winded affair. Still, RSH should be in a position to take advantage of any buying opportunities that this year – expected to be so fraught with difficulties for many companies – throws up. However, I expect it will avoid companies on the AIM market. Because of the fees involved, quote-to-quote takeovers are regarded as prohibitory expensive.

Although RSH shares had failed to deliver when I produced my December quarterly portfolio performance, I still have faith in the group. The more heady 50p-plus valuation should return.

My simple view is that the move to AIM – apparently demanded by some shareholders – is a mistake, although it is now probably too late to attempt a U-turn.

The Plus market leaves a lot to be desired, particularly when considering share dealing volumes. But for many companies AIM has turned out to be an unsatisfactory platform, with share trading weak and prices not reflecting a businesses' true worth. In addition AIM is much more expensive than Plus. Still, I expect RSH to be one that thrives in the AIM environment.

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