Buy­ing back the mar­ket

R238m vote of con­fi­dence al­ready in the money

Finweek English Edition - - Companies & Markets - Phuthuma Nh­leko

EVER SINCE THE start of the col­lapse of fi­nan­cial mar­kets world­wide un­der the crush­ing weight of the prop­erty sub-prime credit cri­sis in the de­vel­oped economies of Europe and the United States, leaders of South African com­pa­nies have put out a con­sis­tent mes­sage of hope on the state of this coun­try’s econ­omy.

Through their fer­vent buy­ing of shares in those JSE-listed com­pa­nies that they’re direc­tors of, they’ve been send­ing a clear mes­sage to pan­icky in­vestors who may be in need of guid­ance about the fu­ture of cor­po­rate SA. As we’ve noted in th­ese pages be­fore, SA’s direc­tors have been net buy­ers of eq­uity through 2008’s tur­bu­lent third and fourth quar­ters.

This past week was no dif­fer­ent. In fact, it got even bet­ter with a net buy of R238m in a week in which the JSE’s all-share in­dex in­creased by 16,7%. Such huge dis­counts were a rare oc­cur­rence and it didn’t come as a sur­prise when ev­ery­body who could do, piled in. That’s af­ter a mar­ket rout that took the al­lshare down by around 40% over the year.

Since early Au­gust, MTN’s Phuthuma Nh­leko and some of his col­leagues have be­come per­ma­nent fea­tures on the buy­ing side of the ta­ble. Other than his mul­ti­mil­lion rand op­tions, Nh­leko last week dipped into his bot­tom­less pock­ets and pro­duced R97m to make a call on the cel­lu­lar op­er­a­tor’s stock. At 7806c/share, Nh­leko missed the bot­tom by about 450c/share, as ev­i­denced by col­league J Ra­madan spending R2m buy­ing 29 000 shares. A week be­fore that, Rob Nis­bet also dipped into R3,7m of his funds to buy 45 000 MTN shares.

All those deals – and many more in other com­pa­nies ex­e­cuted last week – are al­ready deep in the money as the all-share in­dex had re­cov­ered an­other 15% at the time of writ­ing. We won’t bore you with Nh­leko buy­ing third-party funded op­tions worth R899,5m, ex­cept to urge you to closely scru­ti­nise the ac­com­pa­ny­ing ta­ble.

An­other di­rec­tor is Alan R Burke, who has been a con­sis­tent buyer since early this year. He’s the founder and chair­man of elec­tri­cal whole­saler ARB Hold­ings. This past week Burke paid R5,2m for 2,6m shares (around 200c each) in the com­pany. Not a week goes by without Burke buy­ing back the shares he brought to the mar­ket last year at more than dou­ble the cur­rent price.

To get a sense of what drives Burke’s share buys, in­vestors would do well to look up a re­port by col­league Marc Hasen­fuss in the pre­vi­ous is­sue of Fin­week (6 Novem­ber): “…a list­ings boom sees knowl­edge­able sell­ers sell­ing stock to less knowl­edge­able buy­ers, while delist­ings usu­ally en­tail knowl­edge­able buy­ers buy­ing back stock from less knowl­edge­able sell­ers”. Burke’s at­ti­tude to ARB can be summed up thus.

“Noth­ing fun­da­men­tal has changed with re­gards to the busi­ness,” says ARB fi­nan­cial di­rec­tor William Neasham. He was re­fer­ring to the cur­rent price of the share in light of Burke’s buy­ing spree. “He must just be looking at the value the share of­fers at those lev­els.”

At list­ing, ARB promised to ex­pand its ge­o­graphic foot­print out of mainly KwaZu­luNatal, some­thing it has achieved. How­ever, what it has yet to achieve is its ob­jec­tives on ac­qui­si­tions, says Neasham. “We’ll do deals on our own terms, es­pe­cially in this mar­ket.” ARB still has around R60m from the list­ing pro­ceeds and is vir­tu­ally ungeared. The com­pany’s fo­cus is on the big in­fra­struc­ture projects.

The bot­tom of the ta­ble re­flects the mess Vox Tele­coms’ direc­tors got them­selves and the com­pany into when they trusted an un­reg­is­tered and un­reg­u­lated com­pany in the form of Deal­stream with share­hold­ers’ as­sets. The to­tal loss to direc­tors is in the re­gion of R301m if Vox’s clos­ing price of a day be­fore Deal­stream’s col­lapse was con­firmed, is used. Pity share­hold­ers will have to pay for that, be­cause the com­pany has in­di­cated it will ask share­hold­ers to dis­cuss new in­cen­tive schemes af­ter it is­sues its re­sults in the next few weeks. Some direc­tors lost ev­ery­thing in the mess, in­clud­ing CE Doug Reed.

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