October 27, 2020

4imprint – A Boring Profit Generator On The Wrong Market (OTCMKTS:FOREY)

Markets aren’t entirely rational

One of the great proofs that markets – or we investors to be clearer – aren’t entirely rational is the idea of stock splits. There’s no reason that a company with 1,000 $10 shares should be more valuable than one with 100 $100 ones. But it does often enough turn out to be so as stock splits at both Apple and Tesla have shown.

There is a reason why a company with 100 $1 shares will be more valuable than one with 1,000 10 cent ones which is that NASDAQ and the like will cancel the listing of a stock trading for any substantial period below $1. So there is, or at least can be, a substantial reason why reverse stock splits, consolidations, can work in adding value.

And, well, we can all also trot out the reasons why splits might really add value and yet. We can extend our proof. On the London exchange a split aims to get a stock into the £1 to £10 price range. In New York into the $10 to $100 range. There is no reason at all to prefer those ranges other than that the subject under discussion is not one of entire and pure rationality.

Which market to list upon

The same absence of entire and strict rationality can extend to which exchange a stock is traded upon. Which is the play at 4imprint (OTCPK:OTCPK:FOREY).

4imprint(4imprint share price from London Stock Exchange)

The background

4imprint is listed in London for entirely historical reasons. It’s the one remaining listed part of an earlier company. But the business is near entirely in the US. It’s in the swag market. You know the stuff, branded pens and keyrings etc. Rather more these days into actual clothing rather than truly cheap tchotchke.

Results of the years have been truly impressive. It’s a high margin business sector and returns have been large and regular. We don’t need to go into huge detail on this as it’s not quite the point of the investing idea.

The point that is is that it’s really an American company, operating in America, but through a London listing. It’s that last which substantially lowers the valuation of the company.

Recent performance

Sure, obviously, this has been dire:

4imprint(4imprint recent results, from 4imprint)

Much of the sort of clothing swag that the company sells goes to trade shows an the like. Exactly the economic sector that has been entirely and wholly kneecapped by the coronavirus.

We all do though expect at least a semblance of a return to normality once a vaccine is available. So, this is a passing phase.

In the longer term this market is hugely fragmented and there’s plenty of room for 4impact to grow without having to rely upon market size growth. There’re an awful lot of Mom and Pops to surpass before market size becomes a limitation.

A US listing

There’s an ADR for the US as well as grey market availability. But perhaps for good reason many American investors simply don’t like that and would prefer something properly listed in the country. It’s also true – see above about perfect rationality – that different markets can value the same business rather differently. Which brings us to this from the Financial Times:

One way to close the transatlantic valuation gap might be to re-list in the US. The explosive success of online gambling company GAN’s recent migration to the Nasdaq from AIM demonstrates that a fresh set of investor eyes can make a material difference to a company’s valuation.

The FT goes on to think this would be unlikely given this:

The politics would be tricky, however. Such a move would likely disappoint 4imprint’s loyal UK-based shareholders, some of whom would have to sell their stakes to avoid a conflict with their investing mandate. Given the company’s stakeholder driven approach, this seems unlikely.

I take a different view.

Firstly, that the FT is now talking about this means that the subject is in play. No, clearly not the company is, but the subject of the company relisting has now been raised in public. Thought is therefore going to be given to it.

Yes, I would expect this American business to be better rated if listed in the US. And what of the UK shareholders? They would also benefit.

For markets are forward looking. The move towards a US listing would raise the value of the current UK stock as investors bought in in anticipation of the rise in value upon the US listing. Which is exactly what our own play here is.

My view

Yes, this is speculation, not investment. I agree the FT seems to think it’s a great stock to have anyway but that’s not my point. Rather, now the ball is rolling due consideration will be given to the relisting idea. I think it makes sense and will produce a jump in valuation – therefore I expect management to at least float the idea even if the current shareholder base is less than keen.

And even floating the idea about a reflotation will boost the stock value.

The investor view

What seems to be a decent and solid stock anyway along with that possibility of a bolus of value addition? A good speculation for the medium term. As with all speculations this is not for large portions of a portfolio, this is for some small amount of the riskier end of one. The game is to see whether there is that announcement that a relisting is under consideration.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

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