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One of the most magical Christmas miracles this year has been the amazing performance of Jelly Works (LSE: JLY). The company only joined the Alternative Investment Market on Tuesday 21st December with an initial valuation of £10m. This public offering happened merely six weeks after Jelly Works was set up in October. The group still only has six employees.
Yet within five days of flotation the group's shares have risen in value by 2400%. The self-styled Internet investment company now boasts a market capitalisation of £250m. Not bad considering the shares started trading at 5p, making the group worth £10m. You may well be wondering how the hell this dramatic re-rating has happened.
Perhaps the company was poorly advised when raising just £1m initially. A few days later on Thursday 23rd December the group raised a further £1m by placing a fresh slug of shares at 60p. And demand was such that another day later on Christmas Eve another £1m was raised by issuing some more shares at 80p. All in all, the group now has £20m to spend on backing early-stage Internet-based companies.
This year has seen many small shell companies, with no other business, follow this strategy. Many in this field have registered staggering rises on the back of the unproven start-ups in which they have stakes. Durlacher (LSE: DUC) led the way and started this syndrome.
The mini investment bank started publicising the investments it had in its clients, realising that these were considered more valuable than its fundamental corporate advisory and stockbroking business. Consequently Durlacher's shares have jumped over 6000%. Yet still this values the group at £830m. But Jelly Works, which has only just started down this gold-lined track, is already worth a third of Durlacher.
Can this mind-blowing hype be at all justified? So far Jelly Works has only issued a few statements about the companies it has invested in. In its prospectus the group said it had negotiated options to invest in several interesting Internet properties. The exact details were not divulged though. And at flotation none of these rights had been exercised.
Since 'impact day', as the Wise call the start of trading in a company's shares, Tuesday a week ago, several announcements about these stakes have been made. First of all the group invested $2m (£1.3m) in a US Internet investment vehicle called Grand Central Holdings. This company tries to do the same as Jelly Works does in this country.
So far GCH has invested in four companies, including on-line legal portal USLaw.com, electronic book developer Peanutpress.com and messaging service iPing.com. However Jelly Works shareholders will only have a very small, and almost meaningless stake in these endeavours. Indeed the exact holding this $2m investment entitled Jelly Works to was not revealed.
Less wobbly than this initial investment was this morning's release which outlined that Jelly Works was exercising its option in Beenz.com. Beenz is one of the more innovative companies operating in the e-commerce field, or should we perhaps call such a vast expanse a prairie! Launched only in March this year, the company already has 125 employees. Over 200,000 Beenz transactions per week now take place on average and 480,000 consumers have opened Beenz accounts.
The group provides an on-line currency for users. This loyalty system enables sites (including The Motley Fool) to attract users by offering them beenz in return for visits and transactions completed. Think of it as a loyalty card operation as run by supermarkets or air miles programmes organised by airlines.
Jelly Works has spent $1.33m (£850,000) on exercising its option to acquire a stake in Beenz.com. Unfortunately the group does not reveal what exact holding this gives them. Considering how valuable a property Beenz, which is still private, is considered, this cannot give Jelly Works much of a stake. In November the group conducted a third round of fundraising, giving Beenz.com $30.5m of added investment.
If a little more detail is added there might be some cream to pour on this Jelly, but at the moment the speculation surrounding the shares seems to make the current valuation look slightly wobbly. Considering no-one knows the exact stake Jelly Works has in these two ventures, the group's overall valuation still looks as it has been plucked out of thin air.
Why not e-mail Jelly Works chairman Ed Guinan on edguinan@jellyworks.com and ask him to flesh out the details of the group's stakes in Beenz.com? Alternatively let us know what you think about this wobbly story on the Lunchtime Fool message board.
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Morning Movers
Trading was very thin this morning and there are plenty of strange price quotes flying around.
Retailers were among the biggest gainers this morning as reports surfaced that trading has been brisk around the country in the past couple of days. One of the biggest beneficiaries was the computer games retailer, Electronics Boutique (LSE: EBQ), which shot up 3p or 8.1% to 40p. But the stock is still trading well below its recent highs after a couple of pre-Christmas profit warnings.
Kingfisher (LSE: KGF) was another shop on the move. It tickled its way up 31.5p or 4.9% to 671p.
Bid talk helped the insurer Royal & Sun Alliance (LSE: RSA) this morning. Press speculation has highlighted Zurich Financial Services as a possible predator. Share in Royal & Sun surged 38.5 or 9.5% to 444.5p.
Sage (LSE: SGE) seems to be unstoppable at the moment. This morning it surged another 50p or 7.1% to 750p as it basked in the warm glow of positive press comment. Its sunbathing partner was BATM Communications (LSE: BVC) which added 395p or 9.3% to 4647.5p.
And finally, the aforementioned Jellyworks wobbled up 15.5p or 14.3% to 124p. This price values the company at an amazing £250m.
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Other Contributors
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