RC365 Holding (LON: RCGH) shares are down another 12% today. RCGH shares are down substantially as a part of the deflation that we insisted would happen. For while the stories about RC365 were fun there never seemed to be any great substance to them. Millions added to the market capitalisation because they’d signed a credit card distribution agreement. Or they’d been hired to write an update to an app - really, we kept thinking that this was a rerun of the excitements that NASDAQ has had over Hong Kong based financials.
As we said at the start of the run at RC365: “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.”
That’s how we called it when it started.
RC365 Holding share price from Google Finance.
We’ve not changed our view along the way about RCGH: “Now think on this for a moment. At that 60 pence - before this latest announcement - RCHG had a market capitalisation of some £60 million, give or take. After the announcement it's at £120 million (actually, £118 million). So, the additional value from this announcement is £60 million. That's applying a valuation of £20,000 to each credit card issued. That's absurd.”
No, really, we’ve been very down on RC365 Holding: “Now note that all of that is in HKD. They're reporting in Hong Kong dollars that is. This isn't right but it's a close enough approximation - $10 HKD is £1 GBP. Just as a quick shorthand you understand. So, the RC365 results are now that turnover is £1.6 million. The loss is £500k. Assets are £3 million and cash is £1 million. Sure, growth of 100% but that's to support a valuation of £180 million? The company's on a valuation of 100 times revenue? No, we don't believe it, not for a moment. This is a speculation that's got away with itself.”
Note that we don’t think there’s anything wrong with being an HK based financial company. But we do insist that the speculation in the price got well ahead of reality here.
