Fallen but still at a pre­mium

Finweek English Edition - - Companies & Markets Italtile -

LON­RHO, which looks de­ter­mined to re­claim its sta­tus as a lead­ing pan-African con­glom­er­ate, has seen a steady de­cline in its board and a pri­mary list­ing in Lon­don, has shifted from lev­els around 800c in Fe­bru­ary last year to reach a low of 125c/share.

Its price has dwin­dled even though Lon­rho has en­er­get­i­cally bulked up the old Lon­rho shell over the past two years. Group op­er­a­tions and in­vest­ments now span sev­eral African coun­tries and in­clude ju­nior min­ing, wa­ter pro­duc­tion, in­fra­struc­ture de­vel­op­ment, spe­cial­ist construction, tech­nol­ogy, ho­tels and avi­a­tion.

Some South African pun­ters may view Lon­rho as a cheap op­tion on a long over­due African eco­nomic re­nais­sance – per­haps ar­gu­ing that at least two or three of the group’s in­ter­ests should pro­duce above-av­er­age re­turns. But the dif­fi­culty with such a pre­sump­tion is at what Lon­rho can be con­sid­ered a cheap op­tion.

There’s a ma­jor liq­uid­ity prob­lem as re­gards the trad­ing in Lon­rho which means a glar­ing dis­con­nect be­tween its share price in SA and its Lon­don listed price. Last week Lon­rho’s shares were trad­ing at around 5,3p in Lon­don, which by the rul­ing Bri­tish pound/rand ex­change rate would in­fer a value of around 65c/share. Lon­rho is trad­ing buy-in pre­mium even for the most en­thu­si­as­tic Afro-op­ti­mist.

De­spite its weak share price in Lon­don, Lon­rho has man­aged to find back­ers will­ing to pro­vide new cap­i­tal. The group raised £15,6m in Novem­ber 2008, which will shore up its bal­ance sheet and buy time for fledg­ling projects to de­velop much-needed cash flows.

While Lon­rho ap­pears to be a hive of cor­po­rate ac­tiv­ity and an ir­re­press­ible African force, ex­citable SA pun­ters should per prices be­fore delv­ing in with vigour.

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