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A Foolish Warning - merchant house (MHG)
22/2/2010 (119264)

A Foolish Warning

The popular press and why would I scorn such a source? tells us that those of a sunny disposition live longer than lifes awkward squad, who tend to grumble themselves into an early grave.

Oh dear. But Im happy to be here still, so I suppose that helps. And silver linings hide all around after all, looking at my incoming emails this morning, there was one from those slightly superior folk at The Motley Fool inviting me to Earn 9.25% pa fixed for 3 years.

A smile? Well, if you can earn 9.25% these days, it ought to be worth looking at. A sigh? Well, if they are offering that much for a fixed period right now, you need to look at the fine print pretty closely. High risk equals high return, we all know that. But if those clever clogs at TMF are sending out such an invitation, it might be fair to assume that they have checked it out and it is not too bad. After all, they have a reputation to risk.

Er, well, maybe not, The Motley Fool fine print says they dont endorse the third party company or product. Ah does that mean they are just pumping it out to make a few pennies? Surely not.

The offer turns out to involve something called Merchant Turnaround plc., with 9.25% fixed per annum, coupon paid quarterly, bond repayable after 3 years, capital secured against assets, Ordinary shares issued at 1p.

Quite a package. The blurb explains that about 120 companies are closing every day because banks wont lend and charge too much. Merchant Turnaround will seek to offer short term secured loans to private companies with cash flow problems, taking a first charge over the assets. It will also look to take a substantial equity stake in the companies, allowing investors to benefit from potential capital growth. Sounds risky to me, but

Tell me more? Oh, maybe not. In order to get a free fact sheet, the promotion asks you to phone or apply sending your name, phone number, email address and the amount you might like to invest.

What a shame. Experienced investors ought to know that giving such details to boys who want to sell you something opens the way to all sorts of solicitations and calls from salespeople trying to talk you into something you dont want. At this point, it is usually best to abandon all idea of getting involved. If it is a decent product, why not tell the world, straight up?

Never mind. There might be other clues as to the standing of this one. Merchant Capital is offering it, and is FSA authorised. Check the website, and you find a list of directors. Look at Peter Redmond, chief executive. He is on the board of three AIM companies, Weatherly International (WTI), Bella Media (BLL), and Fortfield Investments (FIV).

Jolly good. They sound like the sort of small companies a scheme like Merchant Turnaround could help. How have they done?

Er, well, not so well, it seems. It is hard to follow just what has happened to some of them, and trying to track through the deals is not simple as they have changed shape. Check the share prices, though, and they dont look so bright. All are well down in recent years.

Merchant Capital is part of Merchant House Group (MHG), which itself is listed on AIM. That ought to give us a good idea of how these boys are doing, a sort of showcase.

Whoops. Better double check. Surely that MHG market capitalisation cant be right? One site gives it as just under 1m yes, one million pounds. Another says it is just 700,000.

It all depends on what price you use for MHG, I guess. That seems to move around quite a lot. But then these penny share prices tend to do that or should I say sub-penny share prices?

The price seems to be 0.43p to 0.58p, or around a halfpenny a time. That, folks, is not bad or not bad by comparison with a few weeks ago when it was about 0.20p. One day earlier this month it suddenly went from 0.20p to around 1.2p and has halved since.

At this point, it is clear it actually became so a while back, in truth that further research is a waste of time. Whatever is going on at Merchant House, the top company, it hardly seems sensible to take the Merchant Turnaround bond too seriously if you are a reasonably conservative investor.

Maybe it will work out well, but entrusting your hard-earned to part of a company valued at way under 1m on the stock market does not seem a good idea to me. Even thinking of it would be a really motley foolish move.


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22/2/2010 A motley foolish warning.


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