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.

RC Group – scarier by the day!

RC Group the provider of integrated biometrics and RFID security solutions, announced on 30th March that it is raising approximately £43.7 million by way of a placing.

The group stated that the net proceeds of the Placing will facilitate the Company accelerating its growth and acquisition strategy which entails:

- Strengthening the Company's market position through acquisition.
- Developing strategic partnerships and/or Joint Venture arrangements in the Middle East and Greater China.
- Establishing a regional headquarters in Malaysia.
- Funding R&D and working capital to enable the Company to customise its existing products and solutions to meet market demand.

The Company has apparently identified both acquisition opportunities and potential joint venture partners and is optimistic regarding consummating transactions during the year-please just concentrate on managing the working capital demands for the time being!

The Placing Shares represent a whopping 17% of the current issued share capital of the Company. You can see why they changed broker to Investec who have probably done very nicely out of this deal.

Raymond Chu, the Chief Exec also appears to have exercised options and sold 2,350,000 shares and then, one day later, purchased 100,000 shares at a price of 132.5p per share. Perhaps someone can enlighten me on the reasoning behind this strange move. Having enriched himself through exercising and selling c£3m of shares are we supposed to be taken in by Mr Chu’s apparent subsequent support for the company at 132p per share by ploughing back a miserly £132,000 into the shares.

In our small cap review on 12th March we expressed concerns about RC’s cash management.

Ignore all the waffle about ‘strengthening the Company's market position through acquisition’ and ‘developing strategic partnerships and/or Joint Venture arrangements in the Middle East and Greater China’

In my view, the key driver for raising all this cash is to support the increasing working capital demands.

It will be interesting to see how this all plays out.


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