Could be ex­pen­sive at a cent

Finweek English Edition - - Companies & markets - MARC HASENFUSS

FOR UL­TI­MATE PUN­TERS’ thrill you sim­ply can’t beat a 1c share. No mat­ter how des­per­ate the fi­nan­cial sit­u­a­tion, how dire the prospects or how unin­spir­ing the man­age­ment, cer­tain pun­ters sim­ply can’t re­sist the temp­ta­tion of buy­ing at “can’t-go-lower-lev­els”. The prospect of a ten­bag­ger seem­ingly ob­scures all fun­da­men­tal sense.

Hav­ing said that, it’s pos­si­ble to sym­pa­thise (some­what) with pun­ters who have been de­ter­minedly chas­ing Ab­so­lute Hold­ings at be­tween 1c and 2c/share on the JSE.

Ab­so­lute is in the tile re­tail­ing busi­ness – one that’s boomed for a num­ber of big­ger build­ing sup­plies com­pa­nies on the JSE. In­deed, Ab­so­lute looked ready to cash in on the trend when it opened a cou­ple of stores in Gaut­eng and the West­ern Cape. How­ever, Ab­so­lute has pulled off the near im­pos­si­ble feat of stuff­ing up its profit per­for­mance de­spite the buoy­ant con­di­tions preva­lent in the build­ing sec­tor. Even at 1c pun­ters may be over­pay­ing for this fee­ble counter.

The in­terim num­bers to end-De­cem­ber 2006 are re­ally scary. Turnover – fol­low­ing the clo­sure of the Cape Town tile out­let – slumped 40% to R9,5m, with cost of sales and op­er­at­ing ex­penses at R11m send­ing Ab­so­lute into the red. Cash flow, un­der­stand­ably, was neg­a­tive to the tune of R424 000.

The bal­ance sheet shows a group in a se­ri­ous fi­nan­cial pinch and ex­plains why a rights of­fer has been pro­posed (al­though good­ness knows how that will be ex­e­cuted with the share at cur­rent lev­els).

Cur­rent as­sets of R7m are dwarfed by cur­rent li­a­bil­i­ties of al­most R13m, while the fixed as­set reg­is­ter is propped up by in­tan­gi­bles (good­will of R6m and min­eral rights of R9,5m). Tan­gi­ble net as­set value is -0,89c/share – some­thing that share­hold­ers will need to bear in mind when the terms of the rights is­sue are an­nounced.

With the tile busi­ness on the skids, Ab­so­lute has rather con­ve­niently found a new fo­cus in the min­ing op­er­a­tions held un­der Ab­so­lute Col­lec­tion. Th­ese op­er­a­tions in­clude di­a­monds, quartzite and sand­stone and will hope­fully get un­der way in the sec­ond half. Un­for­tu­nately, its new­found fo­cus looks far from con­vinc­ing and we won­der how many share­hold­ers will fork out in the pro­posed rights is­sue.

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