As we write cash shell Highlands Natural Resources (HNR) has nearly trebled on yesterday's IPO price of 5p – up 16.7% to 14.88p today to build on a big advance late last night. This follows in the footsteps of fellow shell Gate Ventures (GATE:AIM) – currently up more than 15-fold on its 10p issue price since floating on 10 March.

With cash shells the only asset is a pile of cash. There's no contracts, products, services or customers. The stock is therefore a pure play on the management team's ability to build a business using the cash on the balance sheet. Typically – and the Gate and Highlands examples bear this out - cash shells will rise in value as investors speculate on what they might buy. However the risks are significant and after a deal is announced the speculative driver is removed and the shares will often crash.

Highlands has raised £1 million with chief executive officer Robert Price putting up £600,000. The plan is to take advantage of the collapse in oil prices to pick up assets with stable income from distressed companies. A so-called 80/20 model will see 80% of the portfolio weighted towards producing assets with the remainder in exploration.

The group will look to make acquisitions – although how far the current £1 million will go is questionable – and secure farm-outs where there is a limited or nil initial cash outlay. By investing now it hopes to take advantage of an eventual recovery in the oil market. Price founded and led private US operator Palomer Natural Resources and also served as an adviser to AIM-quoted San Leon Energy (SLE:AIM).

The Gate example is slightly harder to fathom. It raised £3.24 million to invest in the media and entertainment sector – with a focus on theatre production and the music industry. Headed up by executive chairman Geoff Morrow, formerly a songwriter for Elvis and Barry Manilow, it is in advanced negotiations to do its first deal which will involve an initial cash payment of £35,000 (rising to a maximum of £300,000) yet its current market cap is nearly £50 million.

The company did attempt to pour some cold water on the speculative frenzy with an announcement on 20 March, highlighting the disparity between its valuation and current cash pile, but although this took some heat out of the share price it has since recovered much of the lost ground.

The eye-watering rise can perhaps partly be explained by the presence on the shareholder register of Jun Zhu. Zhu, who has built an 8.74% stake, is proposed as a non-executive chairman of Gate but is already executive chairman of Chinese e-commerce firm GNet. Morrow himself has also been involved in several ventures in China.

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Issue Date: 26 Mar 2015