Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

Smart Implant Holdings –it doesn’t look like a very smart investment to me

Another one of these pre-IPO offerings came through the post recently.

Smart Implant Holdings has apparently developed a new generation of breast implants that is believed to be safer than those presently available whilst also maintaining a natural feel.

This pre-IPO offering is being promoted by Arc Fund Management.

Why market this to the UK investor

I know nothing about this market and the product may have merit, but there really doesn’t appear much to commend this investment to the UK investor. The business itself is based in South Africa and the so I’m not quite sure why they are looking to raise funds over here anyway.

For investments of this nature it is normal to expect some kind of tax relief to mitigate the risk, however, being an overseas operation there is obviously none in this case.

Ambitious plans

In the face of stiff competition from the giants of the medical world the company has ambitious plans to capture a 9% share of the world market in 3 years. Without having even applied for FDA approval at present this really is ambitious, especially as USA or FDA countries have a c41% of the total market!

Great language

There is some cracking terminology in the introductory note prepared by Company Eye, ‘the small company specialist’.

How about this:

‘The Company plans to implement above line marketing activities based on an overall blue print strategy’-what on earth does this mean!

and

‘Smartplant will be represented either directly or through an outsourced medical representative’-so which is it?

Work is only in process on the application for CE Mark. I question how one can assign a value to a business of c£12m when it hasn’t yet received any regulatory approval. At this stage it is simply an idea!

Apparently Smart Implants are already available in South Africa and are distributed through the company’s subsidiary over there. With a growing reputation in South Africa I can’t understand why they don’t raise funds in that country; surely it would be a lot easier.

‘Company Eye’ also states that the Company has received a number of endorsements from leading cosmetic surgeons and industry commentators, however, none of these are given.

Valuation

The suggested market capitalisation of £12.5m appears to have been plucked from thin air!

The valuation is apparently based on 8 times 2008 pre tax projected forecasts and 3.2 times 2009;why?

Projected turnover for 2007 is £2.7m and for 2008 £6.8m, however, there is no explanation how these numbers have been arrived at.

No new money being raised

Like me, you might be forgiven for thinking that this business is raising more money to develop and commercialise its unique offering. Unfortunately this is not the case and one single shareholder is simply seeking to raise c£1.6m through selling its 12.98% stake.

Why on earth are they selling if the potential is so great?

Discount Offer

The opportunity comes with potential investors benefiting from a 20% to the price investors invested in August 2006 with seemingly an additional 10% bonus from Arc as an ‘expression of appreciation’ to their clients.

Intellectual property (‘IP’) concerns

I am a bit confused about the strength of the IP. The company’s IP is protected through a series of International Patent Cooperation Treaty (PCT) patents, South African provisional patens (Provisional doesn’t sound very final to me!) and South African registered design applications.

It looks a quick premium for Arc

A browse through the accounts section reveals that on 1st March 2007 Arc Growth VCT were allotted 10,257,481 shares in consideration for £150,000 i.e. they paid only 1.46p share only at the beginning of March 2007. A few days later the shares are now being offered at 2.5p and even after all the wonderful bonuses it’s still at 1.80 or a 30% premium to what Arc paid.

On 5th March the Company also allotted a load of shares in consideration for writing off existing debts in Smart Implant. These debts aren’t quantified.

Just to complicate things further there is the usual Isle of Man company in the loop as well.

Exorbitant pay for the Chief Exec

For a company of its small size that is not yet profitable, the Chief Exec’s pay is, in my opinion, ridiculous.

Not only does he collect £120,000 per annum from the Company but he also appears to be receiving a further £48,000 from the Company’s South African subsidiary.

Shareholders should take a stand against pay of this level for a small business like this.


The product may have potential but the investment proposition really doesn’t look very attractive to me.

Author: Anonymous Anonymous | Posted: 7:58 am  
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