The Secret Broker: Bring out ‘yer dead

After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.

All ASX-listed companies have to pay an annual listing fee to the ASX, so that they can be kept on the Official List and maintain a trading opportunity for their shareholders.

The naughty ones that fail to pay their fee on time, will appear in an Official Generic Announcement, with seven days to cough up or be carted out with all the other useless companies that couldn’t find the cheque book in time.

This week, a total of 24 companies were named and shamed in the generic tap on the shoulder announcement, though two of them did manage to eventually find the draw where the cheque book had been hiding.

This yearly act is not an unknown requirement, as every year it has to be and should be allowed for, in the annual company budget and appear somewhere between ‘Tea and Biscuits’ and ‘Directors Annual Golf Club Membership fees’.

If any sensible person is ever approached to join the board of a listed ASX company, they should have it up there in the top 10 questions to ask when invited over for a fireside chat at the chairman’s members only club.

Considering that this week’s list had a combined market valuation of, wait for it, $574m, then surely it’s not a small ask, is it?

The combined fees to pay to the ASX would probably come to around $500,000 or less than 0.1 per cent of the amount of money that shareholders can now never recover.

See below a list of those companies.

Those of you with a weak heart or who are currently hooked up to a COVID induced respiratory device, may want to look away now, or at least move into the spare room and lie down, just in case you recognise a name and it causes you a medical outage.

Company Code Market Cap Notes
Abilene Oil and Gas Limited ABL $0.4m
Affinity Energy and Health Ltd AEB $8.8m
Aurora Absolute Return Fund ABW $1.5m
Axiom Mining Limited AVQ $13.5m
Blina Minerals NL BDI $6.3m
Bounty Mining Limited B2Y $11.1m
China Magnesium Corporation Limited CMC $5.6m Later paid 50 per cent of listing fess as heading off to the SSX – Sydney Stock Exchange
Croplogic Limited CLI $25.1m
Delaware Thirteen Ltd D13 $22.2m
Dongfang Modern Agriculture Holding Group Limited DFM $348.8m
Elmore Ltd ELE $15.6m
Freedom Insurance Group Ltd FIG $4.8m
Freedom Oil and Gas Ltd FDM $11.8m
GBM Gold Limited GBM $8.9m
Horseshoe Metals Limited HOR $2.5m
Jiajiafu Modern Agriculture Limited JJF $3.4m
Jiancheng International Group Limited JCI $26m
Moreton Resources Ltd MRV $9.3m
PLC Financial Solutions Limited PLC $2.1m
Pyrolyx AG PLX $49m
Sterling Plantations Limited SBI $0.845m
Symbol Mining Limited SL1 $5m
Vector Resources Limited VEC $25.7m Paid fees same day
Zyber Holdings Limited ZYB $9.2m

 

Here is the Generic Announcement.

Now, I will have a quid on the fact that none of these company’s directors, past or present, will ever get a touch up from either the ASX or ASIC or ever be required to face up to angry shareholders.

When I was broking, I would maintain my own private record of all the directors of these type of companies. Though in 2021, ASIC will issue individual numerical ID stamps to every director.

This will help everyone sort out the good John Smith’s from the bad John Smith’s, so we know who to avoid and who to follow.

 

‘Lifestyle’ directors

An old sage used to explain to the newbies on the trading floor, what he thought of these lifestyle directors, who never own any shares in the company and always have their hands out.

It went like this:

A head brewer had worked for the same brewery for 40 years, as man and boy, and early one evening he headed out of his house and cycled down the cobbled laneway to the brewery, as he had to put in an overnight shift ahead of the start of a thirsty summer.

In the morning, he never returned home and his wife answered a knock on the door from the local policeman. He took off his helmet and asked her to sit down.

It appeared that overnight, her husband had tragically fallen into one of the vats of beer and drowned.

After he made her a cup of tea, she composed herself and all she asked was if he had suffered. The policeman explained to her that on all accounts they didn’t think so, as CCTV footage showed him climbing out of the vat on at least three occasions, to use the bathroom.

And that about sums up the attitude of some of these company directors.

Returning to the well for funding, at ever lowering share prices, so they can keep paying themselves while overseeing a company that is slowly being bled dry of its cash reserves.

List and raise money at 20c, then come back at 12c for more, then at 8c and then at ever decreasing prices until the company is pronounced dead, having drowned in a vat of debt.

And if the administrators are called in, they can legally allow their mates to come in and pick over the carcass and take the best bits.

 

No skin in the game, no reason to care

The moral of the story is if they don’t have any skin in the game, then their personal interests are not aligned with their (non-fellow) shareholders.

To give you an insight into how it works, you need to look no further than a stoush between a listed company and their sacked chairman.

The chairman had a five-year contract on $340,000 a year and he took the company to court and was awarded a payment of $3.7m (more than 10 times his headline salary), as he had been suddenly sacked, two years in.

This large payout of headline salary to compensation was because of all the perks that came with the job.

These included: a pay increase each year of 20 per cent, a car allowance, overseas living allowance, reimbursement for insurance premiums, health insurance, income protection insurance, airfares for him and his family for holidays, costs of club memberships and share options.

(Options do not rank very high, as any exercise payment will come back to them in their salary and perks.)

Here is a boring video which explains how a salary for $340,000 a year turns into a severance payment of $3.7m.

You only ever see the headline payments in the accounts, with all their entitled lurks and perks hidden away under a different column. If they are on more than one board, then the combined perks become sensational.

Now, if you had paid attention at school, then you would know that the title of this article refers to the Bubonic Plague and I don’t want to be alarmist here.

I only used this title this week because the ASX was wheeling around the death cart so 22 companies could get unceremoniously thrown onto it, and not the fact that it originated in China in 1347, where it claimed the lives of 25 million people and is carried by fleas.

They say if you sleep with dogs you get fleas and lets hope that the directors of these companies get a career ending flea bite and make way for directors who are more in tune with what shareholders expect from them.

Remember, it’s never too late to flea guard the old portfolio before next year’s death cart is rolled out again, and what is the official term for these type of products?

‘Parasite Protection’

Voilà!

The Secret Broker can be found on Twitter here @SecretBrokerAU or on email at [email protected]

Feel free to contact him with your best stock tips and ideas.

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