The Daily Telegraph ran a lengthy article yesterday covering the story of AIM listed United Cacao Ltd SEZC (CHOC) under the headline – “a bitter warning of the perils of AIM”. The company delisted from AIM on February 6th.
United Cacao were developing cocoa plantations in Peru under the persuasive leadership of Dennis Melka. I never held the stock but I did attend a presentation by the company hosted by ShareSoc in 2015 (the ppts are still available to ShareSoc Members here). It was a typical “story” stock. Growing demand for cocoa when world supply was falling, cheap land and ideal climate in Peru, low taxes, and an experienced manager who had made money for investors before. But as the Telegraph article states, “the company ran out of money” and its Nomad resigned. Its problems were compounded by shareholder disputes and its inability to raise further funds, and ultimately Melka resigned.
Shareholders are left in a company where there is only a glimmer of hope although the “trees have not stopped growing” as the Telegraph puts it (it takes some time for Cocoa trees to come into production after planting).
So what is the moral of this story? There are very high risks when one invests in companies with no revenues or profits. This was essentially a start-up with an unproven business model, i.e. can cocoa be produced profitably in Peru? Nobody really knows. It also would not have rated highly on the AIM Scorecard published by ShareSoc – see www.sharesoc.org/investor-academy/advanced-topics/aim-company-scorecard/ . For example, registered in an overseas country, executive chairman, etc.
But in essence this company was an easy one to avoid when there are lots of other more mature companies available on AIM. It does of course bring into question whether such companies should ever be listed on AIM. Was this company suitable to be a publicly listed company when it had no track record and when it was in essence a risky speculation? I think not in essence.
You can make a lot of money by investing in good AIM companies, but United Cacao was the kind of company to avoid.
For example, if you wished to invest in a fruit business you might have considered Fyffes (FFY). A very long established business paying a dividend. That also recently delisted from AIM. The reason? The company was the subject of a bid from Sumitomo – a cash offer that represented about a premium of 50% to the previous share price.