Our Insights
July 30, 2024
Troye Brady, Research Consultant at Aprio Investor Relations
Who, or what is “Roaring Kitty”, you may ask? Well, cast your mind back to late 2020/early2021 when a saga played out on Nasdaq around a little-known share called GameStop (share code: GME). “Roaring Kitty” is the name used by former financial analyst Keith Gill as his YouTube and Twitter handle when he shares investment opinions.
In late 2020, Keith convinced himself that GameStop shares were grossly undervalued, and he aggressively started sharing his views on YouTube and Twitter. In a very short time, he gathered a large following of retail investors who bought heavily into the stock, ramping the share price almost 100-fold from around $1/share in mid-2020 to over $80/share in January 2021.
Billion-dollar hedge funds, which had short positions in GameStop, were brought to their knees and had to be bailed out. The whole saga is well portrayed in a Netflix movie called “Dumb Money”. Things cooled down in subsequent years, but believe it or not, “Roaring Kitty” had another go at GameStop this year (2024) and even got the high-profile politician Robert Kennedy to buy into the share this time. It saw yet another ~170% run-up in the share price, but this time GameStop was prepared and used the opportunity to raise over $2 billion by selling shares into the rally.
Why mention this? Two reasons: firstly, we had a fairly similar experience right here in South Africa which very few people know about, and secondly, if it can happen here, we can learn from it.
Recently Aprio IR assisted a JSE-listed company engaged in a significant international debt-for-equity swap transaction. The company needed the deal to go ahead to prevent closure, liquidation and large-scale job losses. Certain retail investors, convinced that the deal left nothing on the table for them, started rallying around a very vocal individual on Twitter – let’s call him “Twitter Harry” for the sake of this story. Just like Roaring Kitty, our own Twitter Harry presented inflated valuations for the company, gobbled up as gospel by his army of Twitter followers. This started a buying spree which drove up the price to a point where it was almost not worthwhile for the debt-equity deal to take place, threatening the viability of the company.
At some point, the retail investors claimed on Twitter to control close to 15% of the company’s shares, at which point they could, as a collective, potentially block the deal. Fortunately, the story has a good ending; the company engaged with the retail investors and with “Twitter Harry” specifically, convincing them that the deal was in everyone’s best interests, and it was concluded favourably.
With South Africa’s elections now behind us, optimism about the potential benefits of a government of national unity and the prospect of declining interest rates in the near future, it is entirely likely that retail investors will soon be looking at South African stock markets with renewed vigour and hunting for undervalued opportunities. In other words, you may very well see your company being targeted by a Roaring Kitty or Twitter Harry in the very near future.
The retail market is a segment of the investment world which South Africa desperately needs, as there is little participation by the asset managers and large funds in small- and mid-cap companies. Private investors play a vital role here because of the smaller transaction sizes and they often act as the marginal investor who sets the share price, even in larger companies. They provide price discovery and liquidity, and generally have a longer-term investment horizon. Their active involvement and commitment can positively affect share prices.
We recommend having well-established and regular channels of communication with the retail market. Several platforms and forums allow private investors to be engaged and informed in large groups, as individual engagement is often not practical. Aprio regularly assists in those initiatives.
We also recommend that you have Good, Regular and Recent information (“Grr” – roaring kitty, get it?) on your website. Nothing creates a worse impression than a website with only one or two articles from two years ago in the “News” section of your company website. Information vacuums are ideal places where your company can be exploited. Consider Aprio to write “thought leadership” articles for your website.
Talking about information vacuums, we found in our “Twitter Harry” experience that there was a complete lack of credible research on the company. That created the perfect opportunity for anyone to present their own outlandish valuations on social media and go unchallenged. Consider engaging in sponsored research, which will not only provide credibility to your company, but also valuations anchored in reality.
Be ahead of the game, have a media-monitoring service. Follow what is being said about your company on social media, especially at sensitive times like results announcements, big transactions or trading updates. Respond swiftly with media releases to correct misinformation and, if you do happen to get caught unawares by a Roaring Kitty, use it to your advantage. As Churchill famously said: “Never let a good crisis go to waste.” GameStop used the last price rally to raise money. There may be other ways to exploit sudden share price surges or volatility. Use them.
For more information about our investor relations offering, contact Lydia du Plessis at Aprio Investor Relations on lydia@aprio.co.za or call her on 082 491 7583.
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