Why Arria NLG surged by 491%

Arria NLG ranks as one of the worst-performing IPOs in living memory. The company, an expert in so-called Natural Language Generation (NLG) technologies developed at Aberdeen University, managed to lose almost all of its £100 million valuation since listing on AIM at the end of 2013. Now, a month after a cancelled contract by Shell ruined revenue expectations, the firm is close to raising much-needed cash.

Arria's software is able to interpret vast volumes of data and report findings in any language, and in a way which would be impossible to distinguish from a human expert's. This technology meant raising almost £10 million at 100p ahead of its flotation in December 2013 was relatively straightforward. The shares ended their first day on AIM at 163p, before peaking at 368p the following day. That, however, was clearly fantasy land.

Sliding steadily lower over the next 16 months, Arria shares bombed spectacularly at the end of April this year when Shell scrapped its contract with the company less than one year into a $5-10 million three-year deal. Arria warned that revenue for the year to September would be significantly below expectations. That came just days before an equity fundraising with institutional investors was due to complete. It had already warned of a "material uncertainty on the continuing financial viability of the company".

Arria shares plunged by three-quarters, touching a low of 3.3p on Monday this week. But now there's a chink of light and the shares traded as high as 19.5p Wednesday, making a gain of 491% in less than two days.

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A jump in the share price Tuesday forced Arria to confirm midweek that the money men are back and that extra funding in the form of convertible loan notes can be secured within a couple of weeks. Crucially, they'll convert into new ordinary shares at a "substantial premium" to the current share price. So will warrants which will also be issued to subscribers for the convertibles.

Clearly, these potential financiers see a future in the business. Arria has signed at least one new client each month since last August. In May, it won contracts to develop a weather report module in Europe, and a paid for proof of concept pilot agreement with the UK arm of a global finance firm.

In the year the year ended 30 September 2014, Arria generated revenue of £787,000, but with average net operating costs of £462,000 per month, the firm lost £10.6 million during the period.

Results for the six months to 31 March 2015 are due before the end of June.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.