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The Mark Bouris-led Yellow Brick Road (ASX: YBR) has formally lodged a request to delist from the Australian Securities Exchange, citing a failure by investors to fully appreciate the non-bank lender’s market value over many years.
Yellow Brick Road says a delisting is in the best interests of shareholders as the company’s share price has for years been ‘materially lower than the underlying value of its net tangible assets (NTA)’.
However, shareholders who wish to continue to stay on the ride as an unlisted public company have been offered a chance to top up their holdings via a share purchase plan.
Yellow Brick Road’s shares, which ended trading at 5.8c each last week ahead of a trading halt pending today’s announcement, had NTA of 13.86c each at the end of June this year.
The shortfall between the share price and its underlying value of 56.7 per cent compares with FY22, which had the best outcome over the past four financial years of a 39.1 per cent discount.
“The persistent discount of YBR’s share trading price to its NTA per share is significant,” the company says.
Yellow Brick Road reveals that one of the primary reasons it plans to delist is to ‘facilitate the raising of capital at reasonable prices’.
“However, due to YBR’s depressed share price over the last few years, raising a material capital sum at a typical discount to the current YBR share price would be highly dilutive to current shareholders and would further depress the share price” it says.
“The board believes that YBR’s share price performance on ASX, in both price and liquidity terms, is an impediment to YBR seeking to raise capital while it remains listed.”
Yellow Brick Road blames a failure by the market to recognise the value of its future trail commissions among the reasons for its dismal market capitalisation. The company quotes the ‘significant size, volatility and misunderstood nature’ of the movements in the net value of its trail commissions for this situation.
With low share trading volumes and a market capitalisation of between $18 million and $20 million, Yellow Brick Road also has been off the radar for small-cap fund managers and stockbroker analysts.
Yellow Brick Road says its valuation is further hampered by the top four shareholders controlling about 62 per cent of issued capital, representing a large concentration of shareholdings in a few hands.
Yellow Brick Road, which was founded by Bouris just three years after he sold non-bank lender Wizard Home Loans to GE Money for $500 million in 2004, was listed on the ASX in 2008. The company’s shares have never traded above their $1 issue price since listing.
The company says the effect of trading ‘even tiny parcels of YBR shares on the YBR share price has become disproportionately significant’.
“There are examples of trades of as little as $7,000 of YBR shares in a day where the share price has closed down by 1c, which results in a reduction of YBR’s market cap by circa $3.3 million,” the company says. “In the board's opinion these matters are having an unacceptable effect on YBR shareholder value.”
Yellow Brick Road has posted an annual loss every year since 2021, culminating in a blowout to a $3.5 million loss in FY23. Removal from the ASX will immediately drive costs down by $350,000 a year in listing expenses.
The proposal to delist will go to a shareholder vote on 24 October 2023, with the company’s removal from the ASX set for 27 November should the vote succeed.
Shareholders looking to top up their investment in Yellow Brick Road ahead of delisting are being offered shares at 5.5c each to raise up to $2 million, with the share purchase plan representing the sale of up to 11.1 per cent of the company’s current issued capital.
Shareholders with unmarketable parcels valued at less than $500 will be offered a buy-back arrangement by Yellow Brick Road at 5.5c per share to avoid brokerage costs to sell their shares.
Yellow Brick Road shares fell 0.8c to 5c a share in early trade this morning.
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