Free Capital by Guy Thomas

Author:Guy Thomas
Language: eng
Format: epub
Publisher: Harriman House

As an example of a stock bought after a glitch, Vernon quoted the example of QXL Ricardo, an internet auction business. QXL was founded by the technology journalist Tim Jackson in 1997 and floated on the London Stock Exchange in October 1999 with a valuation of £250m. The valuation multiplied more than eight-fold to around £2bn at a share price around 800p just six months later in April 2000.

Eight months after that, the share price had fallen to just 6.5p, making QXL an early member of the ‘99% club’ (dotcom shares which lost more than 99% of their market value). In Autumn 2000 it acquired its German rival Ricardo, becoming QXL Ricardo. The share price languished for the next few years, with the stock market failing to notice quiet progress towards market dominance in some territories, in particular Poland.

This progress was clouded by a glitch – a legal dispute in 2002 in which a Polish subsidiary issued more shares, so that the UK company lost control of the business in Poland. For much of 2003 and 2004 the share price was a tiny fraction of the possible value if all or even just part of the Polish business was recovered.

Vernon bought the shares in his ISA throughout 2004. Early 2005 saw two competing takeover bids for the company, which were thwarted by a consortium of new investors, who bought shares in the market and rejected both bids. As a resolution of the legal dispute came closer, QXL Ricardo was the best performing share over 2005 on the London Stock Exchange. The more than ten-fold rise over 2005 was enough to make Vernon an ISA millionaire.

The legal dispute was resolved in 2007, and the company was eventually taken over for cash in March 2008 at a price more than 50 times Vernon’s average cost. Although Vernon had sold all of his stock in 2007, he still made more than 25 times his average cost. “The key point was that the legal dispute was always likely to be resolved by a compromise, although the timescale and exact terms were unknown. In the meantime, the Polish business was growing exponentially, so even if only a modest fraction of the value was recovered, that would be many times the market capitalisation of the UK company.”

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