I haven’t missed out here. Should I still try and buy it at 68c? Upfront we have the usual disclaimer when it comes to picking shares – we don’t provide investment advice, we can give you some pointers but each and every investment decision needs to be guided by an investment professional or your financial adviser.
We would point out the following though when it comes to ISA:
At 55c/share, you were effectively buying a 7.5% dividend yield (after tax), which beats inflation and that has to be your starting point when it comes to deploying your capital. At 68c/share, you get nearer 5.5%, which is nothing to sneeze at, but is not quite as compelling as you need to look at the fundamentals of the business. In other words – does it offer potential for capital appreciation?
The next thing to consider with ISA is liquidity. While it was last traded at 68c/share, the next best buyer is at 61c/share (the bid). Buyers are at 61c/share, sellers at 68c/share – this is more than 10% difference – simply meeting the bid here means you sacrifice 10% of your investment return. If you like the story, then try and put in a cheeky bid where you get the best price.
Finally with a market capitalisation of R130m, it is not on the radar of most South African asset managers. To contextualise, AdaptIT (which has been the darling of the small-cap IT sector for a while now) is a R288m business and is growing, as opposed to ISA, which is not. ISA management needs to prove that it can grow the business if they want the share price to re-rate.
Our conclusion is that at under 60c/share, it is quite a compelling small-cap investment, but don’t chase the share simply because the media are talking about it. I found Venture capitalists: Do we still need them? (18 April 2013 issue) to be a good article. I believe that VCs do still have a role to play, it’s just that they seem to have lost touch with their original purpose, and also have not adapted fast enough to the changing environment. For a detailed perspective of where VC went wrong and how it might be fixed, I highly recommend http://venturecompany.com for further reading.
We still need venture capital, but it needs to re-invent itself.