Lack of liquidity leads to share price rise for RegTech Open Project

RegTech Open Project (LON: RTOP) is the biggest riser in the Main Market today, but this is more of a reflection of the lack of liquidity in the shares than an indication of the true value of the company. The share price is 46.7% higher at 180.5p. The shares were introduced to the standard list on 25 August at 100p, but no money was raised during the listing.

Following this morning’s trades there have been just over 100,000 shares traded. Many of the trades have been for a handful of shares. In fact, one share was bought in a trade at around 10am today. Five trades were for less than ten shares, which is the same number as yesterday.

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The largest trade so far was on Monday when 18,000 shares were traded – it is not known if this is a buy or sell – at 120p/each.

RegTech Open Project provides business and operational resilience software. That is a large market, but revenues are low. RegTech Open Project has developed the cloud-based Orbit Open Platform, which covers operational resilience and regulation.

Financial services companies are the core client base, but there are also opportunities in telecoms and manufacturing. There are 19 customers, including four Italian banks.

The underlying business generated revenues of £1.1m in 2022, down from £1.31m in 2021, due to a fall in operational resilience fees. The operating loss increased from £930,000 to £2m.

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RegTech Italy, which is part of a group that owns 65% of RegTech Open Project, is providing a shareholder facility of up to £8m with an initial cash drawdown of £2m that will help to pay the expenses of the listing. The company estimates total directors’ remuneration of £505,000 over the next 12 months.

This is a company that is going to have significant cash outflows before it starts to generate cash. It is valued at £108m, which is more than 100 times 2022 revenues. The share price rise may provide an opportunity to issue shares, but they are overvalued at this level and investors should be wary.

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