RC365 Holding (LON: RCGH) is, according to the London Stock Market, now worth £100 million. That's up from perhaps £20 million a week back.This is one of those valuations that we simply do not believe. Of course, the valuation is correct, there's no arguing with prices. But we'd suggest that this is an excess of speculative fervour rather than an objective view of reality.
As we said before about RC365: “RC365 is something vaguely financial and Far East. Which is, we think, what the speculation in the shares is about. We've had enough of these recently on NASDAQ and why shouldn't the idea spread to London? There's been a series of speculations about stocks vaguely financial and vaguely Far East in recent months. The AMTD twins, Top Financial, MEGL and so on all quoted in the US. All driven buy nothing so sordid or detailed as their actual business prospects. Rather, speculators piled in because some story could be told about the fortunes to be made in the perfumed bazaars of the Far East. All of which faded away pretty sharpish. Because they were just speculations based upon momentum trades and when the momentum runs out so does the trade.”
Now that we've more detail about what is happening here we stand by that analysis.
RC365 Holding share price from London Stock Exchange
So, what is happening? “RC365 Holding Plc ("RC365"), a company focusing on payment gateway solutions and IT support, refers to the announcement made on 1 June 2023 whereby its wholly owned subsidiary, Regal Crown Technology Limited ("Regal Crown"), signed a non-legally binding Memorandum of Understanding ("MoU") with Hatcher Group Limited ("Hatcher") for AI Development. Further to this MoU, the Company is pleased to announce that on the 23 June 2023 Regal Crown signed a Collaboration Agreement ("Agreement") with APEC Business Services Limited ("APEC"), a wholly owned subsidiary of Hatcher, to develop and upgrade the existing RC2.0 App, a mobile application providing wealth management solutions, to an advanced version under the name RC3.0. APEC have agreed to pay Regal Crown a sum of HK$15 million for the development of the RC3.0 App.”
So, err, RC365 is being paid £1.5 million (one point five million GBP) to upgrade an app for Hatcher Group. This is a wealth management product. And there will be a 50/50 split in revenues for the next 15 years from this.
Hmm, well, if RC365 were being paid to build the Blackrock wealth management app on such terms then that really would be interesting. But Hatcher Group? “The Company and its subsidiaries (the “Group”) recorded a revenue of approximately HK$39.6 million for the six months ended 31 March 2023, representing an increase of approximately 31.6% when compared with a revenue of approximately HK$30.1 million for the six months ended 31
March 2022. The Group recorded a loss of approximately HK$21.8 million for the six months ended 31 March 2023, compared with a loss of approximately HK$4.4 million for the six months ended 31 March 2022. The increase in loss for the six months ended 31 March 2023 was mainly attributable to the combined effect of (i) an increase in revenue of approximately HK$9.5 million; (ii) the recognition of a gain on disposal of discontinued operations of approximately HK$5.6 million; and (iii) an increase in administrative expenses and other operating expenses of approximately HK$37.8 million as compared with the six months ended 31 March 2022.”
Hatcher Group has annual turnover of perhaps £8 million (yes, eight million British pounds). Upon which it makes a whacking great loss.
Now let's recast this RC365 Holding idea. RCGH is being paid some £1.5 million to write a wealth management app for an £8 million a year turnover company. It's also just an upgrade to the extant product. This collaboration, this contract, has added £80 million to the market capitalisation of RC365 Holdings in London? No, we do not believe that this is a rational reaction, nor do we believe it's a justified one on the substance of the deal.
We call this the arrival in London of that silliness over HK financials that has so infested NASDAQ this past year. Nonsense in short. The problem with actually going short is of course that none of us has any idea how long the nonsense will last.
