Cash­ing in

Com­pany and Car­roll show it’s more im­por­tant than a div­i­dend

Finweek English Edition - - Companies & Markets - VIC DE KLERK vicd@fin­

AN­GLO AMER­I­CAN’S PRICE has more than dou­bled on the Lon­don Stock Ex­change (LSE) since the beginning of May this year – from 906p to the cur­rent 1910p/share. An­glo’s pri­mary list­ing is on the LSE, which is why its price is given in pence. Due to the ex­cep­tion­ally strong rand – es­pe­cially against ster­ling – An­glo’s price on the JSE in­creased by “only” 84% from R134,20 on 3 March this year to the cur­rent R247,70/share.

On 20 Fe­bru­ary this year An­glo and its CEO, Cyn­thia Car­roll, shocked the in­vest­ment com­mu­nity by de­cid­ing not to de­clare a fi­nal div­i­dend for the year to 31 De­cem­ber 2008. The com­pany had al­ready wisely de­cided ear­lier to sus­pend the buy­ing back of its own shares. There was sud­denly a short­age of cash in the com­pany’s cof­fers and ev­ery­thing had to be done to pro­tect it.

That was a shock for in­vestors in An­glo, who had been able to rely on a gen­er­ous div­i­dend through­out the Sec­ond World War and the dark­est days of apartheid. Af­ter all, reg­u­lar and ris­ing div­i­dends were syn­ony­mous with qual­ity in­vest­ments – or so we thought.

The last week of Fe­bru­ary was a black week for An­glo and Car­roll. At 906p/share its price was more than 75% lower than it had been just 18 months ear­lier. There was spec­u­la­tion the group would have prob­lems rolling over its sub­stan­tial debt of more than £8bn – not to men­tion new money that An­glo was so badly in need of. That was af­ter the cash flow from An­glo Platinum, its big­gest in­vest­ment, which had de­cided ear­lier to skip its div­i­dend, dried up. Though Car­roll’s head was on the block she sur­vived.

The les­son for in­vestors from all this is, first, the dark­est night of­ten of­fers the best in­vest­ment op­por­tu­nity. The les­son for CEOs is that in the dark­est days you have to fo­cus on cash, more cash, cash flow and cash again. And when you see the first sign of a small light in the tun­nel your fo­cus must re­main on cash and cash flow. An­glo de­cided as fol­lows (see graph be­low).

Along with those steps to im­prove its cash po­si­tion, An­glo un­for­tu­nately also had to cut back se­verely on sev­eral of its op­er­a­tions and many peo­ple lost their jobs. How­ever, the fo­cus was con­sis­tently on im­prov­ing the cash flow and re­duc­ing debt, or at least en­sur­ing qual­ity sources of fi­nanc­ing were avail­able. The re­sult: a sharp rise in its share price be­cause it en­sured it had suf­fi­cient cash avail­able and that the cash flow wasn’t neg­a­tive. That en­sured sur­vival and the op­por­tu­nity to share in the lat­est, sud­den im­prove­ment in the prospects for re­sources.

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