But beware toxic hedges and those suffering terminal decline
THE SLUMP in the resources sector has brought the overall indices more in line with investments outside the handful of stocks that dominate the all-share index. Though the market is now down 20% over the past year, in the nature of things that masks much steeper declines by many individual shares. So I thought it would be interesting to look at some stocks that have fallen by 50% or more, on the off chance those may outperform when the market rallies. But remember while some may simply have been oversold others may be suffering from specific – even terminal – problems.
Going down through the market, the first on the list – Pamodzi Gold – falls into the latter category. At 115c/share that’s a staggering 93,6% down on the past year, with a market cap of only R108m. Not only does it have financing difficulties, it also has a toxic hedge and has just released an appalling quarterly report – to June, nogal. The 30m shares issued to Harmony for its Orkney business are now worth just R34,5m, exactly one-tenth of the nominal R345m price paid.
The next to catch my eye is Metorex, down 53,2% at 1300c/share. It has a good portfolio of mining operations and projects. Fears about its mining rights in Congo (Kinshasa) have been allayed and of 130c headline earnings per share for the year to June about 75c came in the second half, so profits are holding up well – so far.
Worst performer in the building materials sector is AGI, the old African Glass, off 83,7% at 63c/share with a market cap of only R130m. It’s also just published shocking results, driven into the red by major problems at a new factory, which it claims it’s overcoming.
Plastic packaging firm Astrapak is another with setbacks that led to the departure of founder Ray Crewe-Brown. At 610c/share, it’s 50,1% off over 12 months.
Cable maker and light fittings firm South Ocean is 54,9% off at 320c/share. Its interim results to June were sound and its historic earnings multiple is just three, though it’s warned the second half will be tougher.
At 335c/share, 74,1% less than a year ago, is Super Group a recovery stock? A share price so close to its 12-month low of 300c suggests the market wasn’t impressed by CEO Larry Lipschitz’s explanations at the recent results briefing of the fraud and other disasters at its industrial products division.
Super Group is in the middle of a 50for-100 rights issue at 400c/share. There are currently 418m shares in issue, so theoretically that should raise R835m or so gross. However, its latest announcement implies only R487m may accrue – from shareholders
Worst performer in the building materials sector is AGI,
the old African Glass.
who’ve provided irrevocable commitments to subscribe. Indeed, it’s hard to imagine why anybody else should want to take up shares so deep under water.
Iliad has been criticised for not taking full benefit of the boom (or is it now exboom?) in the building sector and is another where a CEO stepped down unexpectedly. It’s 50,1% off at 850c/share, with a historic earnings multiple of five.
By contrast, Distribution and Warehousing Network (Dawn) is 33,5% off with a multiple of 8,8. And Cashbuild 14,1%, with a multiple of 7,8 (confusingly, those close competitors are listed in three different JSE sections).
Of broiler companies, Sovereign is worst hit, with a 71% decline to 500c, closely followed by Country Bird’s 69,1% to 156c. The background is well known: a squeeze on profits from higher feed costs that couldn’t be passed on as oversupply crimped prices. But chickens remain a staple food.
A couple of disaster areas to note in passing are Amalgamated Appliance Holdings (down 69,0% at 117c) and Seardel (down 89,3% at 75c/share). Let’s also skip over Verimark (76,0% to 30c/share).
More interesting, reflecting collapsing new vehicle sales, is Combined Motor Holdings, down 58,8% at 700c/share. Its 12-month low was 475c, so you’d have made almost a 50% turn if you’d been brave enough to go in at the bottom.
Though Gold Reef Resorts has had major corporate governance issues, do those justify a 53,4% dip to 1510c/share? It may be deplorable but gambling will always be with us.
In the specialty finance sector, Conduit is 76,7% off at 50c. Latest stated tangible NAV is 68c/share. In investment services, Purple – another company holding a rights issue whose success depends on the commitment of major shareholders – is 84,0% off at 28c, and Cape Empowerment – linked to Purple through a cross-shareholding – 70,9% off at 80c/share.
Surprisingly, almost the only IT share off more than 50% is Faritec, down 67,5% at 39c/share, though I for one found its recent results presentation fairly positive.
Well, there’s a baker’s dozen or so. It’s not an exhaustive list. And if I extended it to the DCM, VCM and AltX there’d be another 30 to choose from.
I’m not suggesting it’s any sort of portfolio recommendation. World equity markets are far from stabilising and there are disparate reasons for those shares’ underperformance. Some may well not be around this time next year. But if you believe in buying recovery stocks, you may find others worth a closer look.