The lessons Jasco has for in­vestors; Fund in Fo­cus: 36One Flex­i­ble

Finweek English Edition - - INSIDE - Marc Ash­ton marca@fin­

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.

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