Consider profit warnings as an indicator

ECONOMISTS use a variety of indicators to determine the path they think an economy is pursuing. Some think the ability to secure a seat easily on a flight from Johannesburg to Cape Town signals a downturn deserving further examination; others look at motor vehicle sales; a few may wonder how difficult it is to find parking in a muchfrequented shopping mall.

Not many of us look at the number of profit warnings issued by JSElisted companies. According to Deal- Makers magazine, from the 700 plus companies listed back in 2007 there were only 19 profit warnings in the nine months ended September. That’s a little more than 1%. Warnings in 2008 almost doubled to 36 and then rocketed to 79 and 80 in 2009 and 2010, reflecting the much tougher conditions after the global financial meltdown.

The number dropped marginally last year but is back on the rise again — 75 so far this year out of only 400 or so companies listed on the JSE. So the percentage has risen sharply. The table suggests that close to 20% of the country’s listed companies are signalling some degree of trouble. DigiCore, for example, a technology company in the vehicle tracking sector, says although its turnover has grown, its headline earnings will fall by about 40% from a year ago.

While browsing through merger and acquisition information I looked at some of the stuff released by overseas suppliers of this information and, my word, they do make a hash of things sometimes. I came across the purchase of a 5% stake in Aveng for $76m by a Mr Allan Gray.

The only Allan Gray I know of is the individual who gave his name to the large and well-known privately owned investment company, Allan Gray. I’m sure Allan Gray, the individual, would be glad to know he’s rich enough to buy a minority stake in a South African construction company at a time when everyone is waiting for that fabled infrastructure spend to become reality.