Should you back a small cap into a joint venture? Current form says no
Experts
Experts
At first glance, joint ventures would seem positive. JVs are not just collaboration, they’re two companies creating a new entity.
Theoretically, synergy of two companies’ skills and experience should lead to a common goal being achieved. But this has not been reflected in the market.
Nine of 11 ASX small caps that have entered joint ventures have suffered share price declines.
Yet for the other two, FBR (ASX: FBR) and Genetic Technologies (ASX: GTG) it was a make or break moment for the companies, proving the market actually wanted their product.
After Caterpillar walked away from their partnership in December, FBR finally sealed a deal with Brickworks (ASX: BKW) in May. The pair formed a new company, Fastbrick Australia, and FBR will provide the technology while Brickworks will supply the bricks.
While shares have fallen slightly, they are still ahead of where they were before the deal was signed.
The other positive performer is Genetic Technologies (ASX: GTG). After months of wanting to combine its blockchain and health capabilities, it found a partner last December.
It combined with Blockshine Technology Corporation to form Blockshine Health. Genetic Technologies had a 49 per cent stake in the JV, investing $250,000.
Genetic Technologies CEO Paul Kasian said the new entity, Blockchain Health, “will leverage off GTG’s Biotech experience as well as BTC’s extensive development capabilities in the blockchain space”.
While leveraging off different experiences sounds good in theory it evidently isn’t always so in practice. The remaining joint venture-forming small caps have been down since formation.
Southern Gold (ASX: SAU) has been held back by the harsh South Korean winter but began drilling in early April. Yet its joint venture did not stop the ASX enquiring about its cash flow problems after its most recent quarterly.
The company admitted it needed capital and was seeking to sell Australian assets as an option.
At first glance, Clean Teq (ASX: CLQ) appears to have gone well since it announced a JV last year. Earlier this year, it won a 20-year contract to construct and operate a water treatment plan in China, for a minimum of 9000 renminbi ($1882) per day.
But Clean Teq also operates a nickel-cobalt mine in New South Wales and in recent months these have been the worst performing minerals on global markets due to an oversupply.
Here’s a list of all JVs formed by ASX small cap companies in the last 12 months:
Code | Company | Price (27 May 3.30pm) | JV Partner | JV Name | Effective Date | % Return since JV official |
---|---|---|---|---|---|---|
GTG | Genetic Technologies Ltd | 0.008 | Beijing Zishan Health Consultancy Ltd | Unnamed | 16.08.2018 | -0.2 |
CT1 | CCP Technologies Ltd | 0.016 | Koolmax Monitoring Technology Inc | White Tiger Inc | 30.08.2018 | -0.11 |
SAU | Southern Gold Ltd | 0.125 | Bluebird Merchant Ventures Ltd | Unnamed | 19.09.2018 | -0.34 |
CLQ | Clean TeQ Holdings Ltd | 0.27 | Ionic Industries Ltd | Unnamed | 24.09.2018 | -0.44 |
HIP | Hipo Resources Ltd | 0.012 | Crown Mining Sarl | Unnamed | 15.11.2018 | -0.25 |
A3D | Aurora Labs Ltd | 0.375 | WorleyParsons Ltd | AdditiveNow | 19.12.2018 | -0.25 |
GTG | Genetic Technologies Ltd | 0.008 | Blockshine Technology Corp | Blockshine Health Corp | 20.12.2018 | 0.33 |
IVQ | Invitrocue Ltd | 0.07 | Private Investor | InvivoCue Pte Ltd | 11.02.2019 | 0 |
SHO | SportsHero Ltd | 0.061 | Cross Bet Holdings Pty Ltd | Pay-to-Play Australia Pty Ltd | 07.03.2019 | -0.21 |
TGP | 360 Capital Group Ltd | 0.975 | Private Investor | 360 Capital Digital Pty Ltd | 01.05.2019 | 0.02 |
FBR | FBR Ltd | 0.082 | Brickworks Ltd | Fastbrick Australia Pty Ltd | 06.05.2019 | 0.13 |