Lewis investors may still bounce off couch

The Lewis share price has had a roller-coaster few days, up 6% on Monday, then down 6% on Tuesday.

Wednesday was calmer, trading slightly weaker in line with the market. It is at a fiveyear low. The erratic movement in the share price may have more to do with the news that Canadian asset manager Invesco has increased its holding in Lewis to 20% than the just-released interim results.

A big chunk of Lewis shareholders are North Americanbased. The group’s 2017 annual report reveals South Africans hold 46.15% of the company, North Americans 40% and the “rest of the world” 13.78%.

Presumably all are enticed by the generous dividend payments. It is certainly hard to see signs of the Lewis management having come to terms with the fundamental changes to the trading environment over the past five or so years.

The biggest change has been the vigorous, if haphazard, application of the National Consumer Act. It has had a huge, adverse effect on the group’s credit business.

In the six months to the end of September net operating income fell 30%; this was after 2017’s interim fall of 31% and 2016’s decline of 26%.

The continuous decline has pushed the net operating margin down to 7%, a remarkable collapse from the 26% recorded in 2007. This collapse may help to explain why the share price is trading at a discount of more than 50% to net asset value.

In the next few years, the group’s major challenges will continue to be consumer actrelated regulations and a weak economy. But it also faces implementing the new, much tougher International Financial Reporting Standard 9, which deals with the classification of financial assets and has huge implications for Lewis’s provisioning policies.

There are trading updates, and then there are updates by Consolidated Infrastructure Group (CIG). Three worsening updates in just three months is likely why the market has reacted with nervousness not experienced since Abil found itself on the ropes, notwithstanding that CIG is not — yet — making losses.

And it’s not yet clear who among its top-10 shareholders has decided enough is enough — although the rapid decline in its fortunes will not sit well with its biggest investor, the mysterious Pinecourt International, which as recently as May upped its stake in CIG to more than 14%.

Initially, on August 31, CIG warned that full-year headline earnings would be 25%-35% lower — a range of 165.95c191.25c a share. Fast forward to November 8, when headline earnings per share were expected to be 50%-55% down, and Tuesday’s announcement that headline earnings per share would be “at least” 55% lower.

For a company that has in the past attracted investors partly on the basis of its entrepreneurial and management nous, this development is shocking.

Clearly, it can’t be argued that CIG is being hurt by a macroeconomic slowdown in Africa, or the well-known freezing of further spend in SA on renewable energy in which CIG had latterly positioned itself.

It is almost certain that the loss of control is going to cost someone his job.

The main parties in the firing line must include CEO Raoul Gamsu, financial director Ivor Klitzner and David van Zyl, who is head of Conco, the division in which most of CIG’s problems have occurred.