Fragrant Prosperity Holdings (LON: FPP) shares were up 60% yesterday then down again 20% today on the basis of, well, no one really knows. The management has made an information release insisting that they don’t know either.
Fragrant Prosperity is a SPAC – a special acquisitions company. This means that the company, as it is, doesn’t in fact do anything at all. It’s simply a shell that is quoted on the London market. The aim is to find a currently private company that would like to go public and then merge with it. This brings the private company to a listing at greater speed and lower cost than a more traditional flotation. Some part of that saving is then shared with the shareholders in the SPAC, as we might expect.
Fragrant Prosperity is looking to either the financial sector – “Fintech” or disruptive financial technology as they say – or possible health care and health care therapeutics. This matches the expertise and backgrounds of the board, Simon Retter of Zaim Credit, and Daniel Reshef with his pharma background.
The thing about SPACS is that there’s nothing there. A little bit of cash raised from the initial flotation, the costs of maintaining the listing and that’s about it. Any change in value in the FPP shares – as with other SPACs – has to come from changes in sentiment about what they might do. Which company, where, at what price, might the merger be with?
So, that 60% price rise, perhaps some rumour floating around the market that a target had been identified and that it would be a good one. The thing here being that no one actually knows. Not even the company management know. Which is why, perhaps, the 20% drop today after they released a statement:
“The Company notes the recent share price movement and confirms that it does not know of any reason for such movement. The Company is not in negotiations with any potential targets and is currently focused on raising additional equity capital to pursue the Company's strategy.”
Essentially, “We dunno”. Just one of those things that happen in markets. There is no particular or specific change in the prospects of Fragrant Prosperity so the share price movement is, well, it’s just a share price movement.
This is, of course, deeply unexciting for us as investors but that’s the way things happen at times. Don’t forget that all prices in stock markets are the balance of what people think might happen. It’s entirely possible to look to fundamentals to try to decide what that thinking might be but in the end, it’s always this is the price at which people are willing to buy and sell.
So, sometimes prices do this, as with Fragrant Prosperity Holdings’ share price. Jump then slide back. Just because.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.