Worth less than HCI?

Can the JSE’s al­ter­na­tive mar­ket take more body blows?

Finweek English Edition - - Insight - MARC HASEN­FUSS

FROM THE OUT­SET the AltX, the JSE’s plat­form for fledg­ling and smaller com­pa­nies, stressed qual­ity over quan­tity. Af­ter both pre­vi­ous ini­tia­tives to bring smaller coun­ters to the mar­ket – the Ven­ture Cap­i­tal and Devel­op­ment Cap­i­tal mar­kets – fiz­zled the JSE could ill af­ford to launch a ju­nior board that couldn’t with­stand the kind of pun­ish­ment meted out in a bear mar­ket.

While the AltX is with­out ques­tion a far more ro­bust plat­form than ei­ther the VCM and DCM ever were, the no­tion of at­tract­ing only top qual­ity com­pa­nies was al­ways an ideal that would be rat­tled by the odd cor­po­rate set­back.

Over re­cent months the AltX – which has only re­ally seen one of­fi­cial ca­su­alty in Coun­try Foods – had a hand­ful of nasty de­vel­op­ments among some of its more prom­i­nent list­ings.

For a va­ri­ety of rea­sons, large – per­haps even flag­ship – AltX list­ings have come a crop­per. Those would in­clude Blue Fi­nan­cial Ser­vices, African Dawn, Pin­na­cle Point, Al­liance Min­ing and Queens­gate (the last two be­ing sus­pended amid liq­ui­da­tion pro­ceed­ings).

Blue and Af­dawn were, back in early 2008, two of the biggest list­ings on the AltX, with mar­ket cap­i­tal­i­sa­tions of R2,6bn and R1bn re­spec­tively. The com­pa­nies cur­rently carry a mar­ket value of R206m and R40m re­spec­tively. Then there are a slew of for­mer high flyers, in­clud­ing pop­u­lar con­tenders such as Vu­nani, Wearne, SA French and Di­a­logue, that have needed to em­bark on dra­matic res­cue ef­forts to pull out of a dan­ger­ous de­cline.

It would be no lie to claim at least 30% of the list­ings on the AltX are in a squeeze: brit­tle bal­ance sheets, op­er­at­ing losses and un­con­vinc­ing cash flows. It would be naïve to be­lieve there won’t be more painful de­vel­op­ments among AltX list­ings this year.

In essence, sen­ti­ment for AltX list­ings has shifted from “wide-eyed and won­der­ful” to “jaun­diced and jit­tery”. The statis­tics tell quite a dis­turb­ing story. In May 2008 the AltX car­ried a col­lec­tive mar­ket cap of more than R26bn. This mar­ket now holds a col­lec­tive value of less than R11bn – and that’s if we in­clude the value of sus­pended coun­ters.

If it wasn’t for the re­cent list­ing of Pal­adin Cap­i­tal (mar­ket cap: R13bn) the ALtX’s col­lec­tive value could have been less than R10bn. A more than halv­ing of the AltX’s mar­ket cap­i­tal­i­sa­tion in two years (a pe­riod in which the gen­eral mar­ket has re­cov­ered much of the ground lost in the global fi­nan­cial cri­sis) is an omi­nous statis­tic. Put an­other way, the AltX’s col­lec­tive cap­i­tal­i­sa­tion is roughly equiv­a­lent to the mar­ket cap of em­pow­er­ment in­vest­ment com­pany Hosken Con­sol­i­dated In­vest­ments. You might cyn­i­cally pre­sume HCI – which com­prises a va­ri­ety of in­vest­ments – prob­a­bly at­tracts more in­sti­tu­tional in­ter­est than the AltX.

Statis­tics, of course, can be mis­lead­ing. While there’s no quib­bling that most AltX list­ings have shed value, it’s worth not­ing the AltX has also lost a hand­ful of promis­ing com­pa­nies via “pro­mo­tion” to the JSE’s main board. Those would in­clude Wescoal, Esor, Pan African, In­fra­sors, Ma­zor and Sany­ati. Those “grad­u­ated” list­ings would add back around R4,5bn to the AltX’s col­lec­tive mar­ket value.

Thank­fully, the AltX has only seen one delist­ing (Cel­com), a trend that hope­fully won’t take hold at this del­i­cate junc­ture (but, judg­ing by rel­a­tive val­u­a­tions, could still be an is­sue).

In the ab­sence of new list­ings you won­der whether the much di­min­ished AltX can hold on un­til sen­ti­ment turns again for smaller cap com­pa­nies. It’s a tough ques­tion. But at least there are clear in­di­ca­tions the JSE is back­ing the AltX to the hilt.

Of course, build­ing up the last ves­tiges of vi­brancy on the AltX de­pends on fur­ther suc­cesses be­ing notched up by the ar­ray of qual­ity coun­ters the mar­ket is cur­rently over­look­ing. Be­cause the AltX is cur­rently cov­ered by a blan­ket of dour sen­ti­ment, promis­ing coun­ters such as CIC Hold­ings, OneLogix, Er­ba­con, 1time, Chem­i­cal Spe­cial­i­ties, Myr­iad, ISA Hold­ings and Build­works (among oth­ers) are just not catch­ing the eye of mar­ket mak­ers. On the other hand, the cor­po­rate dis­as­ters make the head­lines and re­in­force prej­u­dices about the sus­tain­abil­ity of small cap busi­ness mod­els.

Promis­ing Counter

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.