Following our huge success with social media stock LXV Ventures Inc.
, Stock Forum
) in November (the stock gained almost 400% in a month
), I introduced Primary Petroleum Corp.
, Stock Forum
) (20 cents)
to Ticker Trax subscribers on November 12th
at 8.5 cents. PIE was not a social media stock but I was targeting their $16 million cash which was worth a lot more than 8.5 cents.
As luck would have it, the following week PIE was halted to announce they would try and take Keek.com public through a reverse takeover (RTO). Keek is an International social media / video sharing service that boasts 60 million users in 30 countries and 36 languages. Keek is a great company that needs help at the executive management level.
PIE resumed trading Thursday and has been one of the most active stocks on the TSX Venture this week - producing a two month gain of 150%
for Ticker Trax subscribers who were fortunate enough to get into PIE the week of my November 12th
Thanks to the TMX Group
who recognize the need to diversify the TSX Venture away from such a heavy weighting to resource exploration companies, they worked closely with PIE and allowed them to resume trading – on the condition investors were aware that the RTO was not yet a done deal. Likely it will go through by March, but it is still an inherent risk.
The TMX Group (who own the TSX and TSX Venture Exchange) need a big pat on the back for this one. Most junior companies have been experiencing huge delays when it comes to a change of business or if they are using a CPC to complete an acquisition.
I asked the CEO of PIE how they managed to resume trading within two months of their halt (when others have been waiting 6 to 9 months). He explained it was a combination of several factors. They were not simply a shell company but had their oil & gas exploration assets (which will be for sale), they had almost $16 million in the bank, a very solid business plan for Keek going forward, and their new board would include people like John Jussup - a lawyer who was previously General Counsel and Corporate Secretary to the Bank of Canada.
Overall PIE was able to demonstrate a VERY high level of confidence for the regulators. I also suspect that if Keek became a high profile success story in the tech sector (as it has the potential to do), it would help attract new business.
In a report I did here early December, I noted the following (dismal) stats for the TSX Venture Exchange (TSX-V):
Almost 80% of the 2,152 listings were trading at or below 10 cents
Almost 50% of the listings were trading at or below 5 cents
The huge majority of these companies are resource exploration companies and this sector has struggled for almost three years now.
With PIE (and Keek) the TMX Group appears to be signalling that if you have a very clear business plan with high growth potential, a proven track record, a strong board of directors, and a strong balance sheet, they are willing to work closely with you to implement a change of business. If you don’t, you can likely expect excessive delays.
KEEK / PIE FAIR VALUE
The growth potential here is significant – but timing is very important.
I am not here to rain on anyone’s parade. I own the stock and want to see them succeed because I am a fan of Keek and believe it will make an exciting public company and social media speculation. However do not lose site of the valuation – both now and once the reverse takeover closes.
In the interim, the short term traders are having a field day with PIE because the stock currently has a large audience and great liquidity. It is also cheap enough that even five to ten percent swings make it an attractive trade for many. I am a fundamental investor and not a “trader” so I view these stocks differently.
FIRST - keep in mind that current speculators are paying for Primary Petroleum ONLY. Assuming the Keek acquisition (RTO) goes through by March or April, they are paying $19 million by issuing 191 million shares at 10 cents per share (since inception, Keek has raised over $30-million in private capital).
The combined company would have about $15 million in cash and marginal debt. There will be 372 million shares outstanding and a large percentage of the Keek shares (issued on closing) will be escrowed for five or six years (released in stages each year based upon certain targets being hit).
If the new management team and directors are able to turn around the financials of Keek and continue to grow that large International audience, then the valuation has the potential to grow significantly. This will obviously take some time and the valuation will also be dependent upon whether or not the strength in social media stocks continues south of the Border.
PIE also has a large land position of high risk oil & gas exploration leases in Montana. It is my understanding that they plan to sell these. What they can get is impossible to estimate.
For Ticker Trax subscribers I will do another report on the company at a later date (likely March) once I know the deal is closed. I will further address valuation at that time.
Until then I am not worrying about share price as it will have a life of its own for a while. Right now it is being affected by the short term traders and people speculating on the future value of a high profile social media play.
Disclosure: Danny Deadlock owns 75,000 shares of Primary Petroleum