Whom to trust?
Most readers know my cynical views on Namibian investment company Trustco Group Holdings. These have been articulated several times in the FM over the past two years.
There are, of course, punters who think I am wrong, and I accept there is always another side to a story. Still, my many years in financial journalism have taught me one key lesson — make damn sure profits translate convincingly into cash flows. Otherwise be wary … very wary. Turning profits on the income statement with the help of asset revaluations is a dangerous game — especially when the market senses that such valuations might not be rooted in economic reality.
Nevertheless, I feel obliged to offer the views of insurance company Conduit Capital, one of the larger shareholders in Trustco along with several other related parties. In its latest results Conduit argues that the qualitative aspects of Trustco are not immediately obvious from the financial statements.
The group offers this: “An investor needs to do the work to really understand the brilliance of the business model. Part of this is understanding the culture of the company, the motivations and energy of the people who work there, and the way in which they think.”
There is also a comprehensive review of Trustco’s contentious property operations in the results, which is worth reading in relation to more downbeat perceptions of the Namibian property sector.
Conduit CEO Sean Riskowitz is irrepressibly optimistic: “The company is dynamic and opportunistic, creative and ambitious, and has created a vehicle with one of the best capital allocation records of which I am aware.”
Riskowitz also argues that on a sumof-the-parts analysis at year-end, Trustco’s market value was far below what the group believed to be a conservative intrinsic value estimate. “We expect Trustco will continue to compound underlying value at a very decent rate.”
This is certainly an interesting opinion … but not likely to erase my scepticism. With the bulk of Trustco’s shares held between Riskowitz-aligned investment entities and CEO Quinton van Rooyen, there probably isn’t much point in trying to convince the market of Trustco’s supposed virtues … except to make doubly sure the market knows the folly of trying to short the share.
Wasted valuation
Waste management firm Interwaste has shown commendable operational improvements of late. Unfortunately the market still rubbishes the shares, which are trading not far from a 12-month low of 77c. A cautionary notice issued this week makes me wonder if Interwaste is considering an offer to minority shareholders and a delisting. Around 50% of the company is held between three shareholders — including the Willcocks family and Coronation Capital. So pitching a take-out offer for a company with a market capitalisation of only R375m is not exactly a strenuous exercise. I hope this is wayward conjecture, as I fear a mass exodus of undervalued (and quality) small-cap companies from the JSE.
In hindsight
I started taking in an interest in 4Sight Holdings at around 70c — prompted by nothing more than a desire to have direct exposure to the much-trumpeted fourth industrial revolution. It has not gone well, though 4Sight’s recent interims did show a vestige of a business model and some profitability. The test for an acquisitive business is to ensure the centre holds … which is all the more tricky if the brains trusts of acquired companies are not suitably incentivised to give their best. In that regard I note that 4Sight issued scrip at 200c a share as part of the settlement for acquiring a slew of companies. At the ruling price of below 40c a share on the JSE, the various vendors can surely not be the most content bunch.
There are, of course, punters who think I am wrong, and I accept there is always another side to a story