Cypress Development: Could The Name Change Add Value? (OTCMKTS:CYDVF)

On 24 January, Cypress Development Corp (TSXV:CYP:CA) (OTCQX:CYDVF) announced that it will be changing its name to Century Lithium Corp effective from 30 January. The ticker on the TSX Venture exchange will also be changed to from CYP to LCE. The name change seems very logical to me, as this will allow the company to appear on the radar of investors reaching for lithium stocks. While the change doesn’t impact anything about the underlying business of the company, bringing more attention to the stock could eventually lead to some price appreciation. Still, the most important factor for Cypress will be the development towards production of the Clayton Valley Lithium Project.

Century Lithium Corp (LCE)

Cypress Development is an advanced lithium development company, registered in Canada with a flagship lithium project in Clayton Valley, Nevada, USA. I’ve covered the company and the project before, so for more specifics on this you could check my previous article or one of the many excellent pieces of Austin Craig on Cypress like his most recent one. Now that the company is changing its name, it’s worth observing weather such a move could turn out to be a positive for shareholders.

Purely from a marketing standpoint, I like the name change. The current soon-to-be-changed name, Cypress Development, doesn’t give any clues about the company’s business. An argument could be made that the branding is more important for mass consumer oriented products/services like Coca-Cola (KO), Pepsi (PEP), Netflix (NFLX) etc. On the other hand, the end product of commodity producers is homogenous, and the clients are indifferent of the branding. While I think this is generally true, especially for already established commodity producers with operating assets, which have been known by a large investor base, there could be a case for branding when it comes to explorers/developers.

Imagine someone is not familiar with the lithium space yet, but wants to do some research and possibly gain some exposure. One possible action would be to type the word lithium in a stock screener/broker’s search bar or here on Seeking Alpha. A total of 50 stocks pop out, yet Cypress Development is not on the list. While 50 stocks seem too many for due diligence, likely someone who wants to get familiar with the space will pick some of the names of that list and try to obtain more information. Such screening technique will automatically cross out Cypress Development from investor’s radar.

With the new name change – Century Lithium Corp, the company will start to pop when prospective investors are searching for “lithium” in various screeners. Not only that, but the new ticker LCE will be exactly the same as the abbreviation of lithium carbonate equivalent. While the new name will not change anything related to the merits of the company and its flagship project, it will likely make it more recognizable, hence potentially widening the investor base.

What does research says?

The issue of whether a change in a company’s name has any impact on the stock price has been a topic of many papers throughout the years. Some authors focus on the price action around the announcement date, while others include also the adoption date. The results seem mixed. For example in the paper “The impact of name changes on company value“, the author finds that there are positive statistically significant returns for radical name changes (i.e. complete change of the name, like in the case of Cypress Development) prior to the date of the announcement, but then the price action reverses:

When a distinction is made between the radical changes and the amendments, the finding of a significant positive abnormal return prior to the announcement, and a reversal after the announcement is apparent only for the radical name changes.

Another paper – “The Impact of a Corporate Name Change on Stock Price and Trading Volume of Canadian Companies” focuses on name changes on Canadian stocks. The author found that “pure” name changes (i.e. complete change of the name, like in the case of Cypress Development) lead to positive abnormal returns in the day following the adoption of the new name:

On the adoption date we do not observe any significant reaction for pure name changes however on the next trading day the stocks with pure name changes earn a significant positive abnormal return of 1.77%, which is significant under rank test and t-test at least at the 10% level of significance.

Going back to the dotcom bubble era, the paper “A Rose.com by Any Other Name” indicated that simply adding “.com” to a company’s name has led to massive abnormal returns:

We find that companies that change their name to a dotcom name earn significant abnormal returns on the order of 53 percent for the five days around the announcement date. The effect is not transitory; there is no postevent negative drift.

Summing it up

While lithium is indeed a critical mineral for the electrification of the economy, hardly any parallels when it comes to popularity could be made with the dotcom bubble, so I think it’s unlikely to see masses of people flocking to stocks with “lithium” in the name without any further due-diligence. Unlike then, now there are too many distractions like crypto, so less informed investing could hardly be concentrated in one sector.

On the other hand, the name change could indeed make the stock more visible and attract a wider range of people, who after some due-diligence may decide to invest. For this to work, the advancement of the Clayton Valley project will be critical. Regarding that, recently the company made an update indicating Feasibility study completion in Q2’23. A few months ago, Cypress demonstrated the viability of its technology to produce battery-grade lithium. At the same time, the company continues to trade at only a fraction of the estimated NPV of US$1,030M from its 2021 PFS as the current EV is less than 10% of that.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.