A DAN­GER­OUS BET

Finweek English Edition - - INVESTMENT -

Hudaco re­leased re­sults that show just how tough the sec­tor that it op­er­ates in is (66% of profit is from min­ing and man­u­fac­tur­ing) and as a re­sult HEPS were down 13%. What I was par­tic­u­larly in­ter­ested in was the com­pany’s bat­tle with Sars, and it spent f ive para­graphs de­tail­ing the is­sues, risks and po­ten­tial costs. The mar­ket has, how­ever, largely shaken off the Sars wor­ries. When the news f irst broke in Fe­bru­ary last year the stock lost al­most 17% on the day on huge vol­umes. Yet most of that loss has been re­cov­ered and as I write this, the stock is off less than 4% from the pre-sell-off lev­els. The les­son here is to con­sider the news be­fore pan­ick­ing and, in this case, while it sounded dire, it was in a sense very ab­stract as there were only claims, noth­ing def­i­nite. The risk is that things be­come def­i­nite and Hudaco ends up pay­ing a huge fine (the com­pany pegs it at po­ten­tially R1.7bn). So when bad news breaks, al­ways de­ter­mine be­tween hard re­al­ity (a can­celled con­tract) and a soft re­al­ity, such as a po­ten­tial Sars risk. That said, at the end of the day there is still risk here as Hudaco could lose and be forced to pay al­most R2bn, so one re­ally is bet­ting on man­age­ment, which can be dan­ger­ous.

Hudaco In­dus­tries

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