WANdisco (LON: WAND) shares are going to plummet upon relisting. The only question is how far down they're going to go. For the new management has brought in a plan which has the potential to cause a negative feedback loop. Not that they really had all that much choice in the matter but that relisting is not going to be a pretty sight when it does happen.
The background problem here is that WANdisco always was a very speculative stock. There were announcements of lovely big new contracts signs but we tended not to find out who they were signed with. The entire business was something very high tech that we all just wouldn't understand. Something about data migration and the like. Well, OK, we can always just check with the actual numbers, right?
Ahahahaha - No. Because it turned out that someone was lying about those potential numbers. To the point that instead of sales of $24 million, they had been $9 million. And that was for the accounting period that had been closed and reported upon. For the currently open period matters were far worse than that. Sales booked in the current period were $11.4 million instead of the $127 million reported and claimed. Apparently all this was the fault of one single senior sales personnel. Well, yes, that could be, although there's an FCA investigation into WANdisco to see if that's really true.
WANdisco share price from London Stock Exchange
Note that the stock is suspended - that's why we've not already seen the share price plummet. Simply because folk can't trade it.
So, given that the prospects of the company have now been gutted that near £900 million market capitalisation is going to fall markedly as soon as the suspension is lifted. Because a company with $11.4 million in booked sales simply isn't worth as much as one with $127 million, obviously.
Now enter the doom loop. WANdisco has enough working capital - and no debt - to get it through July 2023. Two months time or so. So, given that it's not profitable as yet - ahahaha - it's going to require more capital. Which the board think they can gain through a rights issue. A rights issue upon relisting. They want to raise £30 million. Well, on a £900 million market cap that's easy enough. But of course the moment the relisting happens that market cap is going to shrivel. As the share price falls more and more equity will have to be issued to raise that £30 million. In theory there's nothing to stop the doom loop continuing until raising £30 million will mean a 50% or more issue of new stock. The loop is that the worse it gets then the worse it gets again as the effects feed on themselves.
Even if we do buy the WANdisco story being out of this market until the rights issue settles is probably going to be wise.