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New research shows SME business owners face an equity dilemma

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New research shows SME business owners face an equity dilemma

Lack of unsecured debt finance is a barrier to SME growth

New research shows that SME business owners do not want to issue equity in their business to fund growth.

The research, commissioned by alternative SME credit specialist Caple, reveals that more than half (53%) of SMEs would be unlikely to issue equity to fund growth.

More than three quarters (76%) of respondents would prefer to raise money through long-term debt rather than give away equity in their business.

But too often the lack of assets to use as security prevents them from raising finance to develop the business, according to the research of 300 business owners.  Instead they may have to consider giving up equity to raise finance.

Dominic Buch, co-founder and managing partner of Caple, said: “In a service economy like the UK, a lack of unsecured lending is a critical barrier to growth.

“SME owners face an equity dilemma.  They face the difficult choice of scaling back their growth or succession plans or diluting their ownership to fund them.

“This is especially true for established businesses that are too big for P2P platforms and too small for credit funds.

“Caple is a first in the UK in supporting these SMEs to access long-term unsecured lending based on the future cash flows of the business.  We do not ask for collateral or personal guarantees as security.

“Uniquely, the credit is complementary to existing bank debt, providing an attractive, blended financing solution”

The research also shows navigating the funding market can be a challenge.  Some two fifths (41%) of SMEs surveyed said it can be “very frustrating” trying to find the most appropriate form of finance to build their company.

The research demonstrates the role of accountants as SMEs’ most trusted business advisor.  Nearly two thirds (61%) of those surveyed said they would expect their accountant to have a good understanding of all the finance options available.

Caple originates loans through a local partner network of accountancy and business advisory firms.

Dominic Buch added: “At Caple, accountants and business advisors are an integral part of the process.  These advisors assess the eligibility of their clients for funding, prepare business plans and financial forecasts.”

The loans Caple facilitates are part of BNP Paribas Asset Management’s SME Alternative Financing direct lending platform, designed to inject more finance into the SME market.  BNP Paribas Asset Management aims to provide €1bn per year in funding to SMEs across Europe and €400m in the UK.

Caple has now completed three deals worth £9.25m in total for three UK SMEs.  Most recently, it completed a £3.5m fully unsecured loan with Smarts Plumbing Specialists.

Before this, Caple facilitated a £4.25m unsecured loan with Ralph Coleman International, a retail services business.  It first completed a £1.5m deal with Baltimore Consulting, a specialist recruitment services company.

Case studies

  1. Smarts Plumbing Specialists

Founded by John Smart and based in Heath Hayes, Smarts Plumbing Specialists (Smarts) has provided plumbing and heating services across the Midlands since 1972.

Smarts will use the £3.5m loan to fund its next phase of growth and introduce the third generation of the Smart family into the ownership of the business.

Alan Smart, managing director of Smarts, said: “This deal with Caple is ideal for us. Other funders weren’t able to support our ambitions of securing the funding we needed to grow while remaining in control of the business.  We’re now looking forward to developing the business and bringing the next generation of the Smart family into the ownership of the company.”

  1. Ralph Coleman International

Ralph Coleman International provides washing, storage, haulage and repair of plastic trays in the retail food sector.

The £4.25m deal enables a management buy-in and gives the new leadership team the control they need to drive the business’s next phase of growth.

Paul Hampton, director at Ralph Coleman International, said: “We’re delighted to complete this deal with Caple and secure the funding we need to grow the business.  We were attracted to Caple because of the unsecured debt finance it provides access to, which is very unusual for a deal of this size and scale.”

Business

Boeing planned to replace 777 engine covers before failures: WSJ

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Boeing planned to replace 777 engine covers before failures: WSJ 1

(Reuters) – Boeing Co was planning to replace engine covers on its 777 jets months before a pair of recent serious failures, the Wall Street Journal reported on Thursday, citing an internal Federal Aviation Administration document.

The U.S. Federal Aviation Administration (FAA) on Tuesday ordered immediate inspections of 777s with Pratt & Whitney <RTX.N> PW4000 engines before further flights, after an engine failed on a United Airlines 777 on Saturday.

The planemaker and the FAA had been discussing potential fixes for about two years, following an earlier incident in 2018, according to the Journal.

Boeing did not immediately respond to a request for comment.

Although immediate attention has focused on the engine’s manufacturer, Pratt & Whitney, Reuters has reported that its cowling, or casing, is manufactured by Boeing.

Boeing has declined to comment on its manufacturing role and referred questions on the part to U.S. air accident investigators.

The inspections affect older 777s fitted with Pratt & Whitney engines. Newer models, mainly powered by rival General Electric, are not affected.

(Reporting by Sanjana Shivdas in Bengaluru; Editing by Ramakrishnan M. and Jane Merriman)

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GameStop rally builds after puzzling ice-cream cone tweet

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GameStop rally builds after puzzling ice-cream cone tweet 2

By Aaron Saldanha

(Reuters) – GameStop Corp shares surged more than 50% in early deals on Thursday as amateur investors jumped back into the stock weeks after an unprecedented short squeeze triggered a 1,600% rally in the video game retailer.

The latest moves build on Wednesday’s rally in GameStop and other so-called “stonks” – an intentional misspelling of “stocks” – favored by retail traders on social media sites such as Reddit’s WallStreetBets.

The new frenzy puzzled analysts, who had ruled out another short squeeze of the stock which had battered some hedge funds, and fueled more hype after some Twitter users pointed out a cryptic tweet of an ice-cream cone photo from activist investor Ryan Cohen – a major shareholder in GameStop and a board member.

A short squeeze takes place when the price of a heavily-shorted stock rises sharply, forcing short-sellers who had bet against the stock to buy it at those prices to avoid further losses.

GameStop shares were up 54.5% in trading before the bell at $141.70 at 0630 ET. Headphone maker Koss Corp surged 57%, while cannabis company Sundial Growers rose 10%.

Shares of cinema operator AMC Entertainment, another stock caught up in last month’s rally, jumped 17% in pre-market trading on Thursday following an 18.1% rise on Wednesday.

Reddit discussion threads were buzzing again about GameStop on Thursday, with members exhorting others to pile into the stock as the rally gathers steam.

“Bought lots more #GME today, let’s keep fighting !!,” wrote one Reddit user Fundssqueezzer, while another user Responsible_Fun6255 said, “Rise of the planet of the ape: GME edition”.

Earlier on Thursday, GameStop’s Frankfurt-listed shares trebled at one point, overshooting its 100% surge on Wall Street overnight, as European retail traders joined in the fresh buying push.

The sharp moves surprised the market, which thought the excitement behind the recent Reddit-fueled rally had died down.

RISKY BETS

GameStop shares skyrocketed in January as retail investors, urged on by popular Reddit forum WallStreetBets, bought the stock as a way to punish hedge funds that had taken an outsized short bet against it.

The squeeze “personally humbled” Melvin Capital’s Gabriel Plotkin, whose firm was left needing a $2.75 billion dollar lifeline supplied by hedge fund Citadel LLC’s Kenneth Griffin and Point72 Asset Management’s Steven Cohen.

The risky trading strategies employed by some traders on Reddit have drawn the ire of investing legends such as Charlie Munger, long time business partner of Warren Buffett.

“It’s really stupid to have a culture which encourages as much gambling in stocks by people who have the mindset of racetrack bettors,” said Munger, Berkshire Hathaway’s vice chairman.

GameStop’s U.S.-listed shares soared nearly 104% on Wednesday. The volatility in GME, AMC Entertainment and other stocks led to outages on Reddit and periodic trading halts by the New York Stock Exchange.

Online brokerage Robinhood said in a tweet that the NYSE action would impact all brokerages, but that it had not paused trading on the shares.

“It’s a pretty risky play to try and buy now … what we might (see) at the open of the cash market is some people trying to get in,” said Oriano Lizza, premium sales trader at CMC Markets in Singapore, which does not offer pre- or post-market trade.

The latest surge comes after a couple of weeks that saw the shares move in relatively tighter ranges.

“It’s a marathon, not a sprint. Whatever happens resist the urge to sell. The longer we hold the higher it goes,” said @catchme1fyoucan, an Italy-based user of retail trading platform eToro, in a discussion on GameStop

(Reporting by Aaron Saldanha in Bengaluru, Tom Westbrook in Singapore and Danilo Masoni in Milan; Additional reporting by Sagarika Jaisinghani; Writing by Anirban Sen; Editing by Jason Neely and Bernard Orr)

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GSK narrows focus on elderly in trial to treat pneumonia from COVID-19

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GSK narrows focus on elderly in trial to treat pneumonia from COVID-19 3

By Ludwig Burger

FRANKFURT (Reuters) – GlaxoSmithKline will extend a trial testing an experimental rheumatoid arthritis drug on patients suffering from pneumonia related to COVID-19 to focus on the elderly as it seeks to firm up encouraging findings so far.

A trial started in May last year has shown that the drug known as otilimab helps patients over 70 with severe COVID-19 get off mechanical ventilation or high-flow oxygen support faster, the British drugmaker said on Thursday.

The benefit for younger trial participants was not clear enough to merit further investigation, prompting the re-focus on the elderly in a follow-up trial with a targeted 350 participants.

After 28 days of treatment, 65.1% of elderly patients on otilimab plus standard of care were alive and free of intensive respiratory support, compared to 45.9% of patients who received the standard of care alone, according to the trial results.

Effective COVID-19 treatments are still in high demand as vaccination campaigns are only ramping up gradually and as new variants of the coronavirus spread rapidly.

“Given the profound impact this pandemic is having on the elderly and the encouraging data we are sharing today, we are hopeful this finding will be replicated in the additional cohort,” said Christopher Corsico, GSK Senior Vice President Development.

GSK, which acquired rights to otilimab from German biotech firm Morphosys in 2013, said it expects first results of the extended trial in the third quarter of this year, to be followed by talks with regulators if the initial findings are confirmed.

Many patients with severe COVID-19 suffer from an over-reaction of the immune system known as cytokine storm and GSK aims to reaffirm that the drug, originally designed to fight an autoimmune disease, can help.

Attempts to repurpose existing drugs to rein in an overactive immune system in COVID-19 patients have had mixed results.

AstraZeneca’s blood cancer drug Calquence failed to help severely ill COVID-19 patients. Roche’s arthritis drug Actemra, in turn, was shown to cut the risk of death among patients hospitalised with severe COVID-19.

GSK, and other drugmakers, are also working on antibody-based drugs that block the virus directly.

GSK has also brought to bear its knowledge on adjuvants, which are efficacy boosters used in many vaccines, working with partners including France’s Sanofi.

In addition, it is collaborating with CureVac on a next generation of vaccines that protect against new coronavirus variants.

(Reporting by Ludwig Burger; editing by Emelia Sithole-Matarise)

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