Questor: Conviviality’s future hangs by a thread – this is how it hopes to rescue itself

Then, on March 14, Conviviality said another mistake had been uncovered: its cash flow projections had failed to account for an imminent payment to HMRC of £30m. The shares were suspended on that day and have not traded since. The company said it had hired PwC, the consulting firm, to help with its problems. An interim dividend due to be paid two days later was scrapped.

On March 16 the group said it was “engaging with its advisers regarding the possibility of an equity fundraise to effect a recapitalisation of the business”. Three days later the chief executive, Diana Hunter, walked the plank. City institutions had indicated privately that her departure was a condition of their involvement in any fundraising.

Finally, on Wednesday the board confirmed that it would seek to raise £125m in a share “placing” and about £4.4m from an “open offer” of shares.

This new money, it said, would enable it to pay the taxman, clear a £30m loan facility, “resolve overdue payments with its creditors and return them to normalised trading terms”, and provide “working capital headroom”. The group admitted that if it was unable to raise funds by way of the placing or otherwise, “it is unlikely to be able to trade on a going concern basis”.

What does this mean for private shareholders?

Their holdings will be diluted. The £130m or so that the company aims to raise compares with a current market value of £185.5m. And private shareholders will not be able to take part in the placing, which is for institutional investors only. A rights issue, which would allow all investors to maintain their stakes, would take too long to arrange.

The “open offer” is “an irrelevance”, said one experienced retail analyst.

We don’t know yet what price institutions will pay for new shares, or even if they will take part in the rescue, so it’s difficult to predict the degree of dilution or the likely share price when trading resumes. The less they are prepared to pay for each new share, the more have to be created to raise the target sum and the greater the dilution.

Does this episode show that Aim shares are too risky?

Yes – if you choose just one or two stocks. Diversification is absolutely vital: own 10 as a minimum and preferably more.

One figure shows the effectiveness of diversification. If you had invested equally in all 13 of our Aim picks, you would currently have made a total gain of 0.25pc with Conviviality at the suspension price. If the firm were to go bust, your loss on the portfolio as a whole would be just 2.5pc. Naturally we would expect future growth to overturn this loss.

We will publish a further update when the shares resume trading and when more details of the fundraising are known.

Income Portfolio update: OneSavings Bank

Shares in OneSavings Bank, the buy-to-let lender, have fallen sharply from a peak of around 470p in May last year but remain well above the 322p at which we tipped them on Nov 18 2016.

Last week the bank published results for the year to Dec 31 2017. All the main numbers moved in the right direction, with profits before tax rising to £167.7m from £163.1m. The loan book grew by 23pc to £7.3bn, while the cost-to-income ratio and net interest margin were stable.

The board declared a dividend of 9.3p, giving a full-year payment of 12.8p. Last year’s total was 10.5p, so the dividend has risen by 21.9pc in one year. The yield is a healthy 3.5pc and the dividend is covered almost four times by profits. A strong “hold” for the Income Portfolio.