The lessons Jasco has for investors; Fund in Focus: 36One Flexible
Astock that Finweek has been following with some interest is the black-owned Afrocentric Investment Corporation, which holds a 27.3% share in smallcap technology group Jasco Electronics Holdings. Earlier this week, Jasco released full-year results for the year ended 30 June 2013, and they were not pretty. There is an important lesson for investors here.
While revenue was up 16% to R1.15bn, group profits – including the impact of a major restructuring – saw profits decline from R31.2m to a loss of R93.5m for the current fiscal.
Apart from unloading its head office for R8.7m, Jasco incurred impairments and losses on sale of assets amounting to R123m. These losses were incured on sales of businesses in the Lighting (R4.8m) and Structures (R9.7m) business units. The really big hits, though, were incurred by impairments of R72.5m in the M-Tec business and R24.2m in the telecommunications unit.
Hindsight is a perfect science but shareholders in Jasco – and coincidently Afrocentric – might want to refer back to a Stock Exchange News Service (Sens) announcement published on 3 April 2008 by Jasco where it outlined an incredibly complicated transaction, which ultimately saw Jasco buying the M-Tec stake.
Jasco paid R99m to buy an ultimate 34% stake in M-Tec from “Malesela Holdings No 1”.
At the time, Jasco also talked about a special group of “Protectors”, who would protect the rights of minority shareholders. Businessmen Frank Noble and Joe Barbarovich, from Teljoy subsidiary Film Fun Holdings, were assigned this role. At the time Jasco was trading at R2.50, today it trades at 92c/share.
The irony of this of course, is that the (stated) reason Jasco piled into the deal was that M-Tec said it had a R2.5bn five-year contract to supply Eskom. The investment has now been written down by nearly 75%.
One line item that the shareholders will be watching particularly closely is the net asset value (NAV) and tangible net asset values for the group (TNAV). In the previous fiscal these were sitting at R2.41/share and R1.48/share respectively. This compared favourably to a share price that is trading around 75c/ share. These are now sitting at R1.59/share and 93c/share. The cashflow line is becoming a bit of a headache for Jasco as well, with the overdraft facility now rising to R56m from R31.8m in the previous year, and net cash outflows from operations up at R90.8m. Not healthy.