What first? The bad news or the bad news?
At these levels more companies should buy back their shares
THe arT Of “spin-doctoring” one would think is surely to accentuate the positive and draw attention away from the negative. So Finweek was puzzled why last month the JSE – more specifically, the AltX – chose to issue a press release about analysis conducted on the performance of the 62 companies that listed last year.
Any casual observer of developments on the JSE during this year would be able to say with authority that new listings have taken a bath. Finweek advice to the AltX would have been: “Don’t even go there…”
In any event, last month the JSE issued a brief release highlighting the top five listings from 2007 based on share price movements since listing day and share price movements since the beginning of 2008, measured to end-August this year.
The top performer on a “since listing basis” was engineering group Raubex, which showed a share price increase of 112% (growing from 1780c in March 2007 to 3780c/share at end-August.
Other top five performers included construction group Stefanutti & Bressan (16%), plus AltX listings Ansys (25%), BSI (24%) and B&W Instrumentation (13,5%).
Since the beginning of 2008 the top five best performers were AltX listings (which might explain the press release): namely, BSI (32%), Chemspec (9,35%), Hardware Warehouse (6,5%), TeleMasters (4,6%) and Alert Steel (4,6%).
With the fourth and fifth best performers since the beginning of the year only growing by around 5% it would be natural for any morbidly inquisitive soul to immediately wonder how the other 57 listings from 2007 performed. And that’s when it gets ugly…
From ranking six onwards we’re in negative territory, with Hulamin drifting down 3,4% by end-August. Already by 10th position there are signs of serious value erosion, with Rare Holdings showing a 215% decline in the first eight months of 2008.
Then you really have to hold your nerve to scan down to the bottom rankings. Between the beginning of 2008 and end-August, 15 new listings – RBA, Rockwell, Calgro, KayDav, Brikor, Finbond, SA French, African Eagle Resources, Country Foods, Ideco, Rockwell Diamonds, William Tell, African Brick Centre, Country Bird and Interwaste – had lost more than 50% of their value.
Wood specialist William Tell, identification technology group Ideco and food and beverage producer Country Foods actually shed more than 75% of their respective values between the beginning of the 2008 and end-August.
Overall, the average return for 2007 listing in the first eight months of this year was a dismal -36%. That pattern is roughly the same when measuring the listings of 2007
Most of the companies have probably reached the bottom or are close to the
bottom in terms of pricing.
against the share price on the day of listing – which, you might remember, in almost every instance was well above the pre-listing share placement offer.
A more fascinating study in terms of value would be measuring the listings of 2007 against the price at which shares (in the cases where there was a public or private placement) were issued to investors. But with 35 companies listed in 2007 dropping more than 33% from their respective first day listing prices, it seems fairly obvious a slew of listings are trading well below their original issue prices.
In September the JSE – along with major international bourses – has been shaken and stirred by the ongoing global financial crisis. In such volatile conditions it’s the tendency for investors to bail out of newer and untried shares, either to shore up cash or to switch into securer asset classes.
So it’s no surprise the listings of 2007 took further pain over the past month. Some of the “top” performers came under pressure – including Chemspec (down from 117c at end-August to 100c/share last week), Raubex (3780c to 3100c), Alert Steel (115c to 100c), specialist systems designer Ansys (178c to 150c), B&W (210c to 184c) and TeleMasters (down from 230c to 153c).
Pan African Resources was down from 79c at end-August to 59c last week, while housing development company Calgro has
dipped from 125c to 75c/share.
Other downward drifters in the September malaise included cable group Southern Ocean (347c to 320c), vehicle-tracking specialists Mix Telematics (103c to 90c), technology group Rolfes (180c to 159c), crane supplier SA French (50c to 32c), William Tell (115c to 86c) and Blue Label Telecoms (650c to 580c).
But it’s not all doom and gloom for the newcomers. Some counters have shown some guts amid the turmoil and managed recently to make small gains. New listings gainers since end-August would include Stefanutti & Bressan, low-cost airline 1time, rail and electrical engineering group RACEC, construction group O-line Holdings, building specialist Kwikspace and mortgage originator Finbond.
Scanning the table of 2007 listings you might postulate most of the companies have probably reached the bottom or are close to the bottom in terms of pricing. The problem, of course, is that there may still be some fundamental issues that might rock the value of individual companies. You only have to look at the increasing number of downbeat trading statements from newer listings and take note of how many contenders are not going to miss pre-listing earnings forecasts by a country mile.
One activity conspicuous by its absence is share buybacks on the open market. It would seem – barring Universal Industries – most cash-flush newer listings seem loath to buy back their shares on the open market at these markedly lower levels.
The previous listings boom in the late Nineties also didn’t see much share buyback activity when prices came off in the emerging markets crisis. But that didn’t stop management consortiums from buying out minorities at bargain prices and taking some promising businesses private again.
At current levels there can be no doubt more than a handful of new listings present good value for patient investors. However, making such a call is easier said than done – notwithstanding the value meltdown in 2008 (see Finweek picks).