What first? The bad news or the bad news?

At th­ese lev­els more com­pa­nies should buy back their shares

Finweek English Edition - - Companies & Markets - Marc Hasen­fuss

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).

Source: I-Net Bridge

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