DIF­FER­ENT, BUT THE SAME

Finweek English Edition - - INVESTMENT -

So Aveng has es­caped hav­ing to do a rights is­sue by in­stead is­su­ing a con­vert­ible bond. On the sur­face this is pretty much the same as a rights is­sue as it will re­sult in new shares be­ing is­sued for cash, but the com­pany has the right to call the bonds un­der cer­tain cir­cum­stances. That said, these cir­cum­stances are un­likely to oc­cur, so we’re back to the be­gin­ning. Aveng has es­sen­tially is­sued new shares for cash. I con­tinue to stay as far away as pos­si­ble from con­struc­tion stocks. trade in the share (as­sum­ing it wasn’t just snapped up by a sin­gle long-term holder) and this in­creased liq­uid­ity would im­prove price dis­cov­ery. Price dis­cov­ery is one of the main rea­sons for stock ex­changes, but that dis­cov­ery is dis­torted by a large share­holder that ef­fec­tively re­duces the free f loat avail­able to trade. This re­duc­tion of free f loat is to­tally fine, but mar­kets love liq­uid­ity. In­creased free float in Dis­tell would be of huge ben­e­fit to ex­ist­ing and po­ten­tial share­hold­ers.

UP­DATES SHOW EX­PEN­SIVE SHARES We’re see­ing re­tailer up­dates hit­ting the JSE and they’re all pretty much the same – not bad, but far from shoot­ing the lights out. There is dou­ble-digit top-line growth, but when new stores and in­fla­tion are taken into ac­count we’re sud­denly see­ing low sin­gle-digit real growth, with some, lo­cal cloth­ing sales – such as those of Wool­worths* – ac­tu­ally shrink­ing 0.2% on a like-for-like ex­cluding­in­fla­tion num­ber. Con­sid­er­ing the P/E ra­tios these com­pa­nies trade on, these up­dates make the shares ex­pen­sive, but the mar­ket seems to be tak­ing the view that at least prof­its are still grow­ing, so we’re not see­ing much sell­ing.

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