A DANGEROUS BET
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.