- DeepMatter had already told the market that it really needed more cash
- The share price halved, as a result, now the actual placing terms are announced
- This is a very deep discount and the DeepMatter share plunged as a result – and are now recovering
DeepMatter Group PLC (LON: DMTR) is a small company working in the digital chemistry arena. The base business model is to develop the platform first, then sign up users who pay back that investment through subscriptions over time. Such a create once sell many times – most of the cost is in the creation, not the operation once built – can be most, most, profitable. But that does depend upon signing up enough users to cover those costs. And, crucially, having enough cash at hand to survive until the revenues from the user start flowing in.
This is the problem that DeepMatter seems to have not quite got right. Back on 17th Dec, they announced that they were going to have to have a capital raise. The terms and conditions weren’t confirmed at that point. They had a good customer lined up, but that was taking more time than had been thought, so more capital was necessary. Deepmatter shares dropped from 1.2p to 0.63 – halved, essentially – as a result.
Today the terms of that offer have been made clear. It’s an issue of new shares at 0.1p each to raise £2.55 million. That’s an 84% discount to the market price the day before the announcement. Steep isn’t quite strong enough for that vertiginous discount in fact.
As a result – it’s the discount that really matters here – DeepMatter shares were down another 50% at one point this morning to 0.35p. They’ve also been back up as high as 0.5p and at pixel time are at 0.4p.
The reason for the volatility in the DeepMatter share price is that there are two diametrically opposed views which it is possible to hold. One is that a company which has to raise capital at only 10% of the price of only two weeks ago is clearly deep in the weeds. Management also seems not to be looking at the correct time horizon if this all has to be done so fast. So, perhaps there’s nothing here worth saving?
The other view is that the institutional shareholders buying in at this deep discount have been told the story and they’re putting money in at this price. So, it’s possible to assume – rightly or wrongly – that there’s value at this deep discounted price of 0.1p.
Which view is actually correct isn’t quite the right question. In this immediate future, the DeepMatter share price will be determined by the average market belief of which story is true. Trying to read that will be a deeply risky endeavour but then that’s what trading opportunities are made of, risk.
Who is right? DeepMatter is a decent enough business that is now well enough financed? Or the need for that deeply discounted finance showed that it isn’t?
Should you invest in DeepMatter shares?
DeepMatter shares are traded on the London stock exchange's AIM market (the alternative investment market), which is the submarket specifically for smaller companies. AIM stocks are attractive to investors as they have tax advantages and smaller companies have the potential to benefit from rapid growth. But are DMTR shares the best buy? Our stock market analysts regularly review the market and share their picks for high growth companies