Close out season
Huge Group’s Herbst takes pain as he closes out futures position
THAT PUNTERS IN single stock futures (SSFs) were severely burnt in the recent past is well documented. What’s perhaps not been as well reported is the opportunity that route has delivered to some investors. The bombing out of the share price of specialist lender African Dawn Capital (Afdawn) from around 550c in May 2008 to its current 200c has offered an opportunity to its management and directors to significantly bump up their stake in the business. CE Marius van Tonder and three of his colleagues mopped up the SSFs on the company and converted them into contracts for difference (CFDs) before converting those again to ordinary shares.
Van Tonder buying 30m shares at 358c/ share set him back R107m. But to get there he had to make those series of transactions described above. The end result was a R66m investment on the shares.
The next big spender on the Afdawn transaction was CFO Connie van Nieuwkerk, followed by two non-executives (Steven de Bruyn and De Wet Vivier). Van Nieuwkerk spent R30m, while her two colleagues forked out around R20m each.
Van Tonder says he and his colleagues saw an opportunity to relieve a few distressed holders of SSFs and had to convert those to CFDs, as the margins were lower than on SFFs last October. “We then converted that to equity and increased our stake in the business to 25%, as we didn’t want too large a number of the company’s shares to be geared,” says Van Tonder. In October 2008, Afdawn’s shares tied to SSFs were around 30% of the issued share capital – three
times more than the permissible number. Van Tonder says due to that high number of geared shares in a bear market some punters saw it as an opportunity to short-sell the shares.
Van Tonder says he formed a consortium with his colleagues and approached those SSF holders they could identify. Some weren’t ready to part with their investments. The endeavour netted 57,3m SSFs at a price at least 25% higher than the market price. At February 2008, management held 15% of Afdawn.
“Even though the price was high we’re happy to have paid and upped our stake,” says Van Tonder. He says the current 200c share price is “ridiculously low” at 2,54 times its earnings multiple and should pick up soon. The company’s currently in a closed period for the year to end-February 2009 and Van Tonder expects good results. In the previous issue of Finweek (19 February) a colleague suggested it would be “safe to pencil in earnings at around 80c/share” – working out to a forward PE multiple of 2,5 times. That figure was 57c/share at February 2008.
It was a similar case of having to close huge SSF positions at telecoms company Huge Group as CFO James Herbst had to fork out R8,7m to buy back shares he’d sold to buy the SSFs. The 218c/share at which Herbst sold the SFFs is double the 418c he originally bought them for in June last year. Considering he’d have topped up whenever the share price moved 10% against him, it’s no wonder Herbst couldn’t hold any longer. He’d have spent quite a significant amount of money on the contract.
Elsewhere, Famous Brands director John Halamandres sold another 30 000 shares in the company, raising R488 000. That’s in addition to the R754 400 he raised in the second week of February and the many thousands of shares he sold throughout 2008.
Big spender. Connie van Nieuwkerk