Could be expensive at a cent
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.