The market knows best — or does it?

THE MARKET IS NEVER WRONG . . . well, very rarely wrong. There is nothing more disconcerting for us ordinary investors than doing loads of homework to support an optimistic conclusion on a company’s prospects, and then watching its share price dribbling down persistently or stubbornly stalling.

From correspondence I receive from readers, let me say that I have some sympathy for shareholders in counters such as Blue Label Telecoms, Alviva (covered in this issue), Metrofile, Santova, Premier Fishing & Brands, Brimstone, Stadio, Kaap Agri and Hulamin (to name a few).

As to why these counters lack traction in their share prices, the disarming answer is usually that the market is never wrong.

Indeed, the market always seemed to know better when executives spun optimistic stories about profit recoveries and value unlocking. Readers will probably remember that, at times, many punters strongly believed the market had misunderstood or misread the attributes and inherent value proposition in bombed-out counters such as Blue Financial Services, Chemical Specialities, Protech Khuthele, RBA Holdings, 1time Holdings, Erbacon and William Tell. Not quite, as it turned out.

But, in truth, the market does get it wrong. Montauk, the US-based energy-from-landfills specialist, was dismissed as a curious anomaly when it was unbundled from Hosken Consolidated Investments (HCI) nearly three years ago. Montauk, which has some interesting projects in the pipeline, has been one of the best-performing shares on the JSE — so much so that its market capitalisation has drawn close to that of its former company, HCI.

The market last month made another costly mistake with another HCI offshoot when the unbundling and listing of Hosken Passenger Logistics & Rail (HPLR) was roundly ignored. The share fell to 461c before a trading update confirmed HPLR (see page 6) was set to drive some big profits. The share rebounded to more than 700c (even briefly trading as high as 835c).

At the time of writing, the market has wrestled down the value of recently listed technology group Ayo to a level that many punters still believe has no bearing on real fundamentals. The share price of Ayo’s 49% shareholder, African Equity Empowerment Investments, also discounts the inferred valuation and market price of Ayo — even after the announcement that the company had won a large contract with Sasol.

Ayo, tagged to acquisitions and winning more large contracts, requires a huge leap of faith — which the Public Investment Corp has been prepared to take. Any investor who can divine whether the market is right or wrong in this instance will be richly rewarded.