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IS THE MARKET MISSING SOMETHING?
The HCI story is moving faster than I can type but there is a bigger issue and that’s the concern of shareholders, or lack thereof. We saw it with PPC and now again with HCI: a massive boardroom bust-up that can only be negative for the company and while large shareholders may be conducting conversations behind closed doors, share prices hardly move. In the case of PPC, there was some selling but hardly any in the case of HCI. In both cases, either the board is right or it ’s got it totally wrong. Either way, this is a massive deal for the companies, and yet the market seems not to care.
STAYING FAR AWAY
Staying with HCI – court documents suggest the “gross misconduct” of executive chairman Marcel Golding was because he bought R24m worth of Ellies shares without authorisation. I have no special insight into that, but we did see Ellies jump almost 40%, which prompted me to tweet “stop and think a moment”. In short, the buyers are really just going on hope and greed. The reality is that the number of shares could be 6m from some reports but court papers mention he was nearing the reportable threshold and that’s 5%, or around 15m shares. A huge difference but, more importantly, what if these shares start getting sold? Suddenly we have a massive overhang coming to market and that is a real risk to the share price. The reality is that we have no idea how this will play out and that’s exactly the issue. Unknown risk is lurking and while money could be − and has been − made, how does one manage unknown risk? Simple: you can’t, so I’ll stay far away.