SovGem has slid more than 80 per cent from its initial price of 50p last November, making it one of the worst performing new issues of the past year. However, this is unfair.

The current price values the Chinese investment vehicle at little more than its cash level of £1.97m. This means the group’s two holdings in Chinese manufacturers – organic fertilizer maker Bodisen Biotech and linear motor producer Harbin Electric – can be picked up for nothing.

These are currently valued at £1.08m, giving the overall company a net asset value of more than £3m, or around 15p a share. The stock therefore trades at a discount of 40 per cent or so. This is unjustified, particularly as SovGem’s major disappointment is being addressed.

SovGem’s shares were suspended for five months this year, while chief executive Hugh de Lusignan attempted unsuccessfully to negotiate a reverse takeover. This left the company with an exclusive agreement to support some of the pre-IPO fundraisings carried out by Chinese specialist finance boutique Benchmark, now part of New York Global. Some investors felt this was too restrictive. De Lusignan has now managed to extract SovGem from this agreement, meaning he can select investments from a wider variety of sources.

Through a policy of selling investments judiciously, the company even made a £53,000 pre-tax profit in the first half, preserving the cash pile. Things are starting to look up at SovGem and the shares are worth a speculation.

SovGEM	AIM	£1.94m	8.50p	0.00p
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