Ex­tract­ing cash

Mel­nick re­mains hawk­ish

Finweek English Edition - - Companies & markets - LLEWELLYN JONES

THE MERE NAME of fi­nan­cial ser­vices group Pere­grine ob­vi­ously lends it­self to com­par­isons and puns re­lated to birds of prey and we’re sure that chair­man Sean Mel­nick in­tended it to be that way when he es­tab­lished the com­pany.

Thus we note that Mel­nick ex­pressed a hawk­ish sen­ti­ment to­wards the group last week as he switched a por­tion of his di­rect stake in the group into sin­gle stock fu­tures.

Switch­ing into sin­gle stock fu­tures is also a very ef­fi­cient way of ex­tract­ing cash from a share­hold­ing with­out di­min­ish­ing your ex­po­sure to the stock. That’s be­cause sin­gle stock fu­tures are highly lever­aged in­stru­ments that re­quire the buyer only to put up a frac­tion of the face value of the un­der­ly­ing stock, typ­i­cally around 10%.

In other words, if you sell stock for R30m (or just un­der in Mel­nick’s case) you would only need to pay a mar­gin of around R3m to main­tain the same eco­nomic ex­po­sure to the stock. In so do­ing you have neatly ex­tracted R27m.

Of course, fu­tures only have a lim­ited life and you’d have to keep rolling the fu­ture over at each expiry date to main­tain your ex­po­sure to the stock. Clos­ing out the po­si­tion would ef­fec­tively be a sale of the stock.

An­other sub­stan­tial trade last week came from Tru­worths deputy MD Tony Tay­lor, who sold stock worth R13,1m.

It was stock that Tay­lor bought when he pre­vi­ously ex­er­cised op­tions. Tru­worths’ share in­cen­tive scheme rules pro­vide for a loan to be ad­vanced to buy shares on ex­er­cise of op­tions and, if a par­tic­i­pant avails him­self or her­self of that fa­cil­ity, the shares are pledged as se­cu­rity for the loan and re­garded as be­ing held in terms of the scheme.

Fi­nally, we note that while Mass­mart CEO Mark Lam­berti has been sell­ing off the larger part of his hold­ings in the re­tail gi­ant ahead of his re­tire­ment in June, group chair­man Christo­pher Seabrooke has been a con­sis­tent buyer over the past six months. Seabrooke has spent a shade un­der R20m on Mass­mart since Septem­ber 2006, ef­fec­tively dou­bling his stake in the group.

Seabrooke has been a di­rec­tor of more than 20 JSE-listed com­pa­nies over his work­ing life. He’s cur­rently CEO of Sab­vest, chair­man of Metro­file Hold­ings and Set Point Tech­nol­ogy and a di­rec­tor of Datatec, Pri­me­dia and Nas­daq-listed Net1 UEPS Tech­nolo­gies.

He’s a di­rec­tor of a num­ber of un­listed com­pa­nies over­seas and in SA, in­clud­ing SA Bias In­dus­tries and Minework­ers’ In­vest­ment Com­pany. He’s a for­mer chair­man of the South African State Theatre and a for­mer deputy chair­man of the in­au­gu­ral Na­tional Arts Coun­cil.


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