SPECIAL SITUATIONS

While the bear prowls the JSE, ready to tear a strip off wayward investors, there are ways for sharp punters to insulate a portfolio against further downside risk — and make a nifty little return in the process

The dour trading conditions on the JSE do, ironically, offer some — albeit in certain cases short-term — upside potential in the form of special situations. This can entail an unlocking of value, when new shareholders take control of an underperforming company or ensure they have influence over a company’s strategic direction. It has occurred at services group Adcorp and technology conglomerate Allied Electronics Corp (Altron).

There is a similar effort under way at empowerment counter Grand Parade Investments (GPI), where activist shareholders are hoping to close a huge discount on the group’s intrinsic value.

In the case of Adcorp and Altron, the intervention of an influential shareholder has already put some pep in the share prices. At GPI there has been a slight uptick in the share price since the activist shareholders’ intentions were declared, but there is still some caution, as the process of gaining board influence will be decided only at the end of this month.

In tough trading conditions, as valuations are ground down, it also seems reasonable to assume that corporate takeovers could be on the increase.

While there are a number of distressed companies on the JSE, there are also promising ones with decent fundamentals that are tagged with dismal market ratings.

Dairy group Clover and Uk-based shopping centre-owner Intu were both trading at disrespectful ratings before becoming subject to takeover bids. Intu’s takeover bid has come at considerable premiums to recent share price averages.

Industrial counters Torre and Howden Africa are both subject to proposals to delist by making an offer to minorities, though the latter has curiously opted to execute this exercise through a share buyback. At the time of going to press specialist retailer Verimark — a company shunned by mainstream investors despite bouts of superb profitability and a generous dividend regime — also indicated that its controlling shareholder, the Van Straaten Family Trust, intended buying out minorities and delisting the company.

Mining group extract, which only recently unbundled from industrial services group ENX, has proposed a delisting too.

There are bound to be more special situations unfolding in the months ahead, and investors might do well to spot shares that could be subject to shareholder activism as