Here at Stock Gumshoe we like to keep our ears tuned in to teasers from all around the world, or at least the English-speaking world — the marketing techniques used by Agora, the Motley Fool, and the whole rest of the financial newsletter universe don’t stop at our borders, and we do have our loyal cadre of readers from Australia, the UK, Hong Kong … everywhere investors can be counted on to have their otherwise impeccable common sense occasionally made fuzzy by greed.
The most tied-in global publisher of newsletters is probably Agora, and they started Port Phillip Publishing in Australia as their beachhead in the Lucky Country about a decade ago. I don’t know whether it’s still Agora-affiliated these days, but they seem to send their copywriters to the same training schools — and today’s teaser decipherification is about a pitch made by Tim Dohrmann at Australian Small-Cap Investigator, Port Phillip’s “speculative little stock” newsletter.
And I should let you know up front that this is not just a small-cap newsletter, most of us would consider it a micro-cap newsletter. And it’s relatively inexpensive at only A$99 a year. If you step back and think about it for a moment, that’s a terrible combination — “low cost newsletter” means you’re looking for very broad readership, probably at least 10,000 people even in the very, very small Aussie investing market. Microcap stocks are usually extremely illiquid, and there are by definition very few shares to go around, so that means you can’t have more than a half dozen folks invest $5,000 in them without blowing up the shares.
I don’t know whether Australian Small-Cap Investigator recommends exclusively these tiny and risky penny stocks, or whether they just use these to draw in new investors with their teaser campaigns, but the few times we’ve covered them the stocks haven’t done particularly well — the worst one that comes to mind is Ceramic Fuel Cells (CFU in Australia, CEFLF OTC in the US), which was going to “single-handedly launch an enormously profitable and life-altering global revolution”… the newsletter at the time (this was 2007) said that 300% gains are “virtually in the bag.”
Which is not to say that I’ve even looked at today’s teaser stocks yet, or have a prognosis — but just to give you what I hope is a nice, thick layer of skepticism to protect you from what will seem to be desperately appealing stocks from Down Under. Maybe the stocks teased are great this time around, but think for yourself.
Here’s how the pitch got our attention:
“‘The Dagron Solution’
“This unique device transported secret information safely across German enemy lines during the Siege of Paris in 1870.
“Today, this same device is changing the face of personal security…
“And it could make you three times your money in 2015…
“Dagron’s creation became the go-to espionage tool for a generation.
“In 1941, FBI Director, J. Edgar Hoover dubbed the microdot ‘the enemy’s masterpiece of espionage’ after being handed a microdot – warning of an attack on Pearl Harbour – by a Serbian double agent.
“The CIA used microdots extensively during the Cold War to transport secret information.
“East German spies were known to store microdots in hollowed our molar teeth.
“Today, these same microdots are being used by large corporations to battle a global threat.
“I’m talking about a problem that costs ordinary folks like you and me more than $1 billion each and every year – and that’s just in Australia.
“And the best part is:
“This innovative spin on old technology could hand you a 382% gain in the next 12 months.”
So this is basically about a company using microdots as a theft deterrent — you spray microdots with the VIN number all over your car, or with some other tracking number over the pile of copper rods in your warehouse, and someone will be less inclined to steal your stuff because the microdots can’t be cost-effectively found and removed.
The idea is that this can both stop counterfeiting (of casino chips, designer clothes, even money) and provide a theft deterrent… sound familiar? It’s much the same pitch that has been made by other Agora-affiliated newsletters in the past to pitch an entirely different company, Applied DNA (APDN), which is aimed at essentially the same market — though instead of spraying encoded microdots onto products, or weaving microdots into fabric or labels, APDN sprayed plant-derived DNA codes that they said couldn’t be copied or tampered with.
APDN is down 75% or so from when Patrick Cox started really actively touting it for his Breakthrough Technology Alert back in December of 2012, and still doesn’t have a meaningful level of revenue, just FYI — so we’ll use that as another little arrow in the quiver of skepticism, this kind of technology and service is obviously compelling, there’s clearly a need to stop counterfeiting of drugs, of money, of microchips, and clearly more of a theft deterrent for valuable capital goods would be useful… but the evidence doesn’t naturally show that an upstart microcap technology company is going to solve this problem, nor that large customers who are motivated to solve these problems are necessarily willing to invest heavily enough in those solutions to make a small company profitable.
OK, enough skepticism for you? Sorry, I had to lay it on a bit thick this time because the stock is even more absurdly, dizzyingly small than usual. Here’s a bit more of the tease for you:
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“This isn’t some start-up technology business garnering attention from media hype and over-the-top financial analyst valuations.
“Those kinds of companies are hit-and-miss at the best of times.
“These guys have been plugging away behind the scenes for 15 years. Painstakingly, perfecting Dagron’s original microdot recipe. And I’m convinced all their hard work is about to materialise into a small, but powerful technology revolution.
“Holden, Subaru and Volkswagen are a few of the household names using this proven technology right now.
“But these contracts are just the start of this little Aussie company’s bold expansion plans.
“As you’ll learn in a moment, the small Aussie firm at the centre of this innovative anti-theft creation is on the move with THREE international deals on the table that promise to TRIPLE, maybe even QUADRUPLE revenues over the coming months.”
And then they describe the car theft deterrent variety:
“7,000 ‘microdots’ are sprayed on your car. And not just one panel… but randomly across your entire vehicle.
“Each dot is etched with a unique code linking the car to you and this code is stored on an international database.
“No one has the same code as you.
“That’s why the automotive industry has dubbed this tech. ‘spray-on DNA’.”
And then some examples that make us think this is a real up-and-comer:
“Dozens of car manufacturers have adopted this proven technology for new cars rolling off the assembly line right now… and it’s working like gangbusters. Take a look:
“Japanese vehicle manufacturer Subaru says new car theft rates have dropped 93% since they began using ‘spray-on DNA’ on their cars.
“Luxury car brand BMW have given the thumbs up to this theft protection device – new car thefts are down 63%.
“Motorcycle juggernaut Yamaha have noted a 25% reduction in the theft of new motorbikes since applying this smart Aussie invention to their entire range.
“And ‘Home-grown’ high-performance car maker Holden Special Vehicles (HSV) state they’ve seen a 62% fall in new car thefts.”
Well, pretty much all those testimonials and endorsements and impressive-sounding data points are taken straight from Data Dot’s website here… and yes, the company being teased is DataDot Technology (DDT in Australia, DADTF OTC in the US). Which, as I mentioned, is ABSURDLY small… and yet very expensive. The company is valued at only AU$24 million (about US$19 million), trading for just a couple pennies per share, but they have never made money and they have been posting annual revenue in the same weak range of $5-8 million or so for five years or more. They reported an EBITDA profit in the final six months of 2014, which they were excited about, and they say they’re on the verge of increasing revenues.
Is this really going to be on every new car? I dunno, but certainly nothing is moving in a hurry. It’s been available for about a dozen years, it was owned by a US company before the Aussie partners bought it out, and DataDot has apparently made some inroads with auto manufacturers in Australia, but there’s clearly no groundswell of demand — it’s not marketed actively on the web by any automaker that I could find, most of the testimonials are at least several years old, and I have no idea whether any car companies currently offer it as an option or a standard anti-theft feature. They just made a deal with Harley Davidson, apparently, to sell it as an after-market accessory in some US dealerships in conjunction with a theft warranty, so perhaps it will catch on there, I don’t know.
So you can go check out their financials if you like — the last earnings release is here — and try to find any indication that DataDot technology is going to be sprayed on every engine, hood, copper rod, or whatever… and whether you think that indicates there’s any chance of profitability in DataDot’s future, or whether the Port Phillip folks are right in that there are “lucrative deals on the horizon” that are set to “add tens of millions to their bottom line.” They’ve burned through about AU$27 million in cash to date, so I guess they probably at least won’t be paying taxes for a while.
Here’s one last bit of optimism from the teaser ad, just so I don’t leave you to heavily weighted down with cynicism:
“The company revealed the expansion of its sales force in the massive – and potentially lucrative – US market.
“This expansion brings more experience and industry contacts to the table. That’s a good thing… but that’s not why I’m excited about this announcement.
“The reason this news got my blood pumping is because the expanding US sales force has snared twenty five new potential deals.
“These deals could break at any time this year. That’s why I’m filling you in on this opportunity now while the stock still holds sizeable upside.
“As soon as these deals are pushed over the line there’s no telling how far the stock will climb.
“In fact I think I’m being pretty conservative on my 382% prediction for this stock…
“… it’ll only take one or two of the dozens of multi-million dollar deals filtering through the pipeline to considerably boost earnings and make this stock scream higher.”
That announcement that he’s excited about, from December, is here — and if you want more of the blue-sky hopes and dreams of the company, their latest investor presentation is here. You can make your own call — I’m going to sit on the sideline for this one, comfortably skeptical, but perhaps I’m just being an old fuddy-duddy.
They tease a couple bonus ideas in this ad, too, so let me get on those quickly… here’s the first:
“‘Advance Scout’ Play #1:
“The stage is set…deals are being made… and NOW is the time to buy…
“This tech could change the lives of millions in environments where clean drinking water is in short supply.
“And I’m not just talking about in the third world.
“Imagine the importance of clean water in Australia’s red centre or the urban crush of a developing megacity.
“In short, the potential market for this technology is huge….
“As the company’s founder puts it, the stage is now set for the company to take the next step.
“Right now he’s paving the way for some key deals with the Chinese authorities to install water-cleansing plants all over China.
“If those deals happen in the next few months, these shares could soar.”
That’s not a lot of clues, but I’d wager that they’re very likely teasing Cleanteq Holdings (CLQ in Australia, I don’t think it has a pink sheets/OTC ticker in the US).
Cleanteq is a company that attracted a substantial investment from mining superstar Robert Friedland a couple years ago, so that has driven more attention to the shares from time to time — they do have some water purification technologies that they’re working on, with mining customers and Chinese water authorities probably the most likely end users, and they also bought a Scandium deposit from Friedland’s Ivanhoe Mines a while back that they would like to push through to development.
I’ll leave it at that — it’s a tiny company, market cap around AU$40 million, and it’s both advancing the scandium project with potential partners and looking for customers for its water-treatment technology in China in a joint venture with SIDRI that they signed late last year. Investors seem enthused about it of late, with the stock rising sharply here in early 2015. You can see their February investor presentation here, this December article that helped to spur some investor interest, and, well feel free to let us know if you like or loathe their prospects — I don’t often trade directly in Australia, and I don’t know whether scandium demand will eventually really materialize… and I’ve been tantalized, many, many times by fantastic-sounding solutions to China’s horrific water pollution problems but have come to realize that I have no idea whether one water purification and filtration technology is dramatically better or more cost efficient than another.
And one more…
“‘Advance Scout’ Play #2: Record sales figures for a new female wonder-drug could spark an EIGHT-FOLD price surge in one 4¢ pharma firm — starting in 2015….
“the next company I want to tell you about has developed a treatment that could help millions of WOMEN overcome a problem that has an extremely personal impact on sufferers.
“What’s more, in March last year it was approved for sale.
“Clinicians around Australia are lining up to partner with this ‘mighty mouse’ pharma firm, and I expect worldwide sales to follow soon.
“For example, if these guys take just 5% of the Australian market, yearly sales will top $243 million. And that’s just here in Australia!
“That’s my conservative estimate, by the way.
“The potential rewards in a bullish scenario could run into the billions.
“Check out this update on their sales efforts from July 2nd: ‘In line with the clinician-first strategy, active sales promotion will increase as the clinician network expands.’
“I believe this is a clear ‘advance scout’ warning that a huge sales announcement is coming.
“If and when that happens, you could easily be set for an EIGHT-FOLD surge in the share price.”
Well, I suppose that yes, a company announcing that they’re going to do more “active sales promotion” as their distribution network expands is a “advance scout” warning that they’re, well, interested in growing sales… I don’t know how predictive that kind of statement is, but I haven’t ever seen a company NOT say that they’re going to more actively market their product once the stuff is available for their customers to buy. If you could screen for companies that say they’re planning to market more and grow sales, it’s not like that would eliminate many firms from consideration.
But enough snarkiness… this is no longer a four-cent stock, it has come down by a third or so from that price, but from that pitch it really has to be a little med-tech company in Australia called Analytica (ALT in Australia, no US ticker). They do have some US news just recently, though, in that they received 510(k) clearance to market their device in this country… it’s been approved for a while now in Australia.
It’s not a wonder drug, and it’s really barely a medical device so I guess approval probably wasn’t too difficult, but it addresses what is potentially a large market for female incontinence that’s caused by a weak or damaged pelvic floor — their device, called Pericoach, is essentially used to see whether Kegel exercises are being done properly (the device talks to a smartphone, which tracks the data and can share it with the doctor). The device costs $300 in Australia, my quick look at the website says they’re not selling it yet, and you apparently can buy it direct and decide for yourself whether or not you want a doctor or clinician to be able to monitor your results online.
Will it work? I have no idea. They’ve just started to sell the device/system in Australia, it was released for sale in November and they only reported about $4,000 in sales for the second half of 2014 so presumably they sold perhaps a dozen devices at the end of the year. Their website looks pretty slick and friendly, the market is potentially large, and they raised a couple million dollars late last year — but I suspect it’s going to be a shock just how many more tens of millions of dollars they’ll have to raise to make meaningful progress at direct-to consumer marketing. Maybe they can gradually bring clinicians online and get sales that way, with clinicians referring their patients, but that certainly won’t be fast — maybe that’s why the FDA approval didn’t light a fire under the stock last week, the US represents potential sales but also huge, huge, huge marketing costs… and there isn’t necessarily a lot of money in it for clinicians that I can see, presumably the only real revenue is the $300 for buying the product, so unless they’re paying commissions to clinics or selling it mostly wholesale through clinics it may be a tough sell on that side.
That’s just my quick take on it — they have about AU$3 million in cash, and unless I’m missing some huge unmet groundswell of demand they’re going to have to spend a lot more than that to build a market for their product. I wish them well, and hope it works, but I’m not so interested in investing in this Aussie stock… if you think I’m missing a fabulous opportunity, fell free to let me know that I’m a moron with a comment below.
So… three stocks being touted to Australians these days, two of which are very tough to buy if you can’t traded on the Australian Stock Exchange… any of them catch your eye? Other favorites down under? Let us know with a comment below.