Buying back the market
R238m vote of confidence already in the money
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.