Close out sea­son

Huge Group’s Herbst takes pain as he closes out fu­tures po­si­tion

Finweek English Edition - - Companies & Markets - SIKONATHI MANTSHANTSHA sikonathim@fin­week.co.za

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

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