The mar­ket knows best — or does it?

Financial Mail - Investors Monthly - - Editor’s Note - MARC HASENFUSS email Marc on hasen­fussm@times­me­

THE MAR­KET IS NEVER WRONG . . . well, very rarely wrong. There is noth­ing more dis­con­cert­ing for us or­di­nary in­vestors than do­ing loads of home­work to sup­port an op­ti­mistic con­clu­sion on a com­pany’s prospects, and then watch­ing its share price drib­bling down per­sis­tently or stub­bornly stalling.

From cor­re­spon­dence I re­ceive from read­ers, let me say that I have some sym­pa­thy for share­hold­ers in coun­ters such as Blue La­bel Tele­coms, Al­viva (cov­ered in this is­sue), Metro­file, San­tova, Pre­mier Fish­ing & Brands, Brim­stone, Sta­dio, Kaap Agri and Hu­lamin (to name a few).

As to why th­ese coun­ters lack trac­tion in their share prices, the dis­arm­ing an­swer is usu­ally that the mar­ket is never wrong.

In­deed, the mar­ket al­ways seemed to know bet­ter when ex­ec­u­tives spun op­ti­mistic sto­ries about profit re­cov­er­ies and value un­lock­ing. Read­ers will prob­a­bly re­mem­ber that, at times, many pun­ters strongly be­lieved the mar­ket had mis­un­der­stood or mis­read the at­tributes and in­her­ent value propo­si­tion in bombed-out coun­ters such as Blue Fi­nan­cial Ser­vices, Chem­i­cal Spe­cial­i­ties, Protech Khuthele, RBA Hold­ings, 1time Hold­ings, Er­ba­con and Wil­liam Tell. Not quite, as it turned out.

But, in truth, the mar­ket does get it wrong. Mon­tauk, the US-based en­ergy-from-land­fills spe­cial­ist, was dis­missed as a cu­ri­ous anom­aly when it was un­bun­dled from Hosken Con­sol­i­dated In­vest­ments (HCI) nearly three years ago. Mon­tauk, which has some in­ter­est­ing pro­jects in the pipe­line, has been one of the best-per­form­ing shares on the JSE — so much so that its mar­ket cap­i­tal­i­sa­tion has drawn close to that of its for­mer com­pany, HCI.

The mar­ket last month made an­other costly mis­take with an­other HCI off­shoot when the un­bundling and list­ing of Hosken Pas­sen­ger Lo­gis­tics & Rail (HPLR) was roundly ig­nored. The share fell to 461c be­fore a trad­ing up­date con­firmed HPLR (see page 6) was set to drive some big prof­its. The share re­bounded to more than 700c (even briefly trad­ing as high as 835c).

At the time of writ­ing, the mar­ket has wres­tled down the value of re­cently listed tech­nol­ogy group Ayo to a level that many pun­ters still be­lieve has no bear­ing on real fun­da­men­tals. The share price of Ayo’s 49% share­holder, African Eq­uity Em­pow­er­ment In­vest­ments, also dis­counts the in­ferred val­u­a­tion and mar­ket price of Ayo — even after the an­nounce­ment that the com­pany had won a large con­tract with Sa­sol.

Ayo, tagged to ac­qui­si­tions and win­ning more large con­tracts, re­quires a huge leap of faith — which the Pub­lic In­vest­ment Corp has been pre­pared to take. Any in­vestor who can divine whether the mar­ket is right or wrong in this in­stance will be richly re­warded.

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