Un­ful­filled pre­scrip­tion

Finweek English Edition - - Companies & markets - MARC HASENFUSS

WELLCO, THE ALTX-LISTED COM­PANY THAT ser­vices health-prod­uct niches, is dis­play­ing all the symp­toms of de­bil­i­tat­ing cor­po­rate stress dis­or­der. The group’s bal­ance sheet is stretched, the cash flow mea­sures dan­ger­ously low and net as­set value is a mere blip. It’s in such sit­u­a­tions that pres­sure at HQ of­ten sees direc­tors prone to des­per­ate acts… such as is­su­ing shares for cash when the com­pany’s share price is bombed out.

How­ever, a few braver pun­ters may well be pre­pared to look past those rather sickly fun­da­men­tals. They may sense a stronger pulse af­ter Wellco an­nounced an in­ter­na­tional sup­ply agree­ment for a li­censed malaria prod­uct that will “ma­te­ri­ally en­hance the turnover of the com­pany in the year end­ing Fe­bru­ary 2008”. The prod­uct is aimed at cer­tain African coun­tries via the re­spec­tive health and de­vel­op­ment aid pro­grammes. But the deal still hinges on the reg­is­tra­tion of the prod­uct in those coun­tries as well as the com­ple­tion of a tech­ni­cal due dili­gence of the fa­cil­i­ties and man­u­fac­tur­ing ca­pa­bil­ity.

The deal also means that cash-strapped Wellco has to ex­er­cise an exclusive op­tion to ac­quire 100% of the in­tel­lec­tual prop­erty of the prod­uct for R580 000.

How ex­actly Wellco – whose profit pre­dic­tions have been some­what wonky – will en­sure that R580 000 trans­lates into a ma­te­rial en­hance­ment of turnover in 2008 is any­one’s guess. Scep­ti­cism aside, a more telling no­tice ap­peared af­ter the ini­tial “malaria prod­uct” press re­lease – dis­clos­ing the sup­ply agree­ment was val­ued at ap­prox­i­mately US$4m (R30m).

But then comes the clanger. Be­cause of the tim­ing of the sup­ply agree­ment, Wellco won’t meet its fore­cast re­sults for the year ended Fe­bru­ary 2007.

What un­mit­i­gated bullt­wang for direc­tors to in­fer that the malaria con­tract is in some way re­spon­si­ble for the com­pany not meet­ing its 2007 fore­cast. The tim­ing of the malaria con­tract – which was never a fac­tor in Wellco’s cor­po­rate make-up – seems like an all-too-con­ve­nient scape­goat to mask some se­ri­ous cor­po­rate de­fi­cien­cies.

And if you think the mar­ket’s tak­ing a dim view of de­vel­op­ments, con­sider that less than half of the en­vis­aged 15m shares is­sued for cash were fully paid for by (un­named) in­ter­na­tional in­vestors.

At this point, avoid Wellco like the plague…

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.