The lavish, the austere, and small caps that last

IWAS REMINDED, by Shawn Stockigt’s cover story and his company review on Trellidor, of my early excursions into small-cap stocks.

It was really by default. I had left Business Day and joined the old Argus newspaper in Cape Town — not because I did not enjoy Business Day (I really did) but because I could not wrap my small-town head around the bustle of Joburg. Because The Argus, which was an afternoon paper in those days, competed with The Cape Times — a morning paper — I really had to dig deep for fresh copy. So I went to almost every AGM of every Cape-based JSE-listed company.

In those days AGMs were literally fiveminute affairs, and the only shareholder activist was the redoubtable and irrepressible Issy Goldberg. But if you could corner the CEO or the FD over tea, you might get some valuable snippets of information.

I vaguely recall a packaging company — either Bowler Metcalf or Aries Packaging — hosting an AGM on the factory floor. I also remember great AGMs at great companies — such as Macadams Bakery Supplies, the old Morkels Retail Group (then under the towering gaze of the imposing and brilliant Dods Brand), Ocean Diamond Mining Holdings, Invicta (when it was still run from Constantia), Denis Kaye’s Laser Transport and the late (great) Dougie de Jager’s Lenco.

Then there were Seardel’s garden parties at the plush Monterey headquarters on the occasion of its results, and the more austere assemblies of Hicor (where koeksisters were supplied in a particularly good year).

Most of these companies that were kicking around in the early 1990s have disappeared — some honourably, some with their tails between their legs and others without an ounce of dignity and with nothing in shareholders’ pockets.

The few small caps that endure for decades do prove rewarding for faithful backers. I think of counters like Spur Corp, AdvTech, Bowler Metcalf (without doubt my favourite small cap), Combined Motor Holdings, Sasfin and Nu-World Holdings.

Having also watched ambitious plays like W&A Holdings, Tigon, Protea Furnishers, LeisureNet and MGX (to name a few) flounder, it is evident that enduring small-cap companies have a few things in common. Most notably these are conservative balance sheet management, an uncomplicated operational strategy, extreme discipline in acquisitions, unerring focus on cash flows and a keen understanding of the importance of maintaining brand or service strength.

Yes, small caps are back in favour. But I’m just reminding you to apply your investment quality criteria at all times. ●