Bruce Whitfield looks at some of the first quarter’s biggest disappointments
The first quarter of this year saw a range of financial, industrial and technology shares take a pounding on the JSE Securities Exchange. There was not a single resources stock among the bottom feeders this time.
The worst-performing share in the first quarter was Paradigm Capital Holdings. Paradigm lost 90% of its value in the first three months of the year after it sacked its CEO, Mike Forster, ousted its chair, Raymond Mallach, and became embroiled in a number of legal battles. After starting the year at 30c, the Paradigm share price ended the first quarter at 3c.
Paradigm laid theft charges against Forster and the company’s former treasurer, and accused Mallach of not following proper procedures when selling a company to Paradigm. It also became involved in a protracted struggle for ownership of a Rolls-Royce Mallach had claimed was given to him.
Foster and Mallach were kicked out when majority shareholder Tony Cotterell took over the running of the firm. He has refused to comment about the future of his investment in the company and several interview requests with MD Werner Alberts have been declined over the past month.
Idion Technology Holdings lost 83% of its market value in the first three months of the year, from R7,75 at the end of December to R1,30 at the end of March. But looking at it in this light as the second-worst performer for the first quarter masks a vast improvement in recent days. The turn started on April 11 and since then the counter ran up to R2,50, before closing at R2,45 on Monday. CEO Nicolaas Vlok said there had been some institutional selling of the stock, but attributed the higher price to people coming back in search of value. The company is trading under cautionary, which may or may not have something to do with the current price strength.
Heritage Collection’s share price tumbled to new lows by the end of March, but has recovered slightly since then. However, at 60c it’s still a long way from the levels it saw at the beginning of the year. It was the quarter’s third-worst performer, falling 82% from 150c to 27c.
The postal strike in the first quarter had a “terrible effect” on the mail order company, which was crippled for about six weeks and struggled to catch up on its mailings. It also felt the effect of changes in consumer spending patterns in the last six months of last year, with casinos, the lottery and cellphones cutting into profits.
Heritage Collection suffered a blow after New Clicks decided not to follow through with its planned merger with the company. But CEO Barry Lloyd remains upbeat about the prospects of the merger actually going ahead. The issue has been referred for arbitration and will be decided in May.
Core Holdings is a small cap media company that has had no end of bad news. It was forced to place its publishing subsidiary Redsand into liquidation last year. From listing at 100c, it now trades at 2c a share.
During the first quarter this year the counter fell 81,8% from 11c at the end of December to 2c. To add to the melting pot of negative senti-ment towards the company, the chief operating officer and biggest shareholder, Kathy Fielding, started selling shares at 2c in March. To date she has sold 6,3-million of her 43-million shares in Core.
CEO Mark Floisand relocated suddenly to the United Kingdom to find business for the company. Floisand had told Moneyweb prior to his leaving that there were some good opportunities internationally in the next six to nine months for the group.
Also recently, the entire management team of subsidiary International Fairs and Exhibitions walked out, with its founder and managing director Wolfgang Striebeck claiming management had only ever intended to milk the subsidiary dry to cover some of its own losses. On Tuesday Core put out a statement saying Striebeck had been dismissed even before he resigned pursuant to an inquiry into the financial affairs of the subsidiary. Core says the inquiry includes “possible criminal action, institution of action for defamation and breach of contract, and any other action that may be justified”.
Aside from the goings on at International Fairs and Exhibitions, there are market rumblings of more developments to come in some of Core’s other businesses. We will be keeping an eye out for further happenings.
Command Holdings was created via the purchase of 14 private security companies and listed in February last year. It fell 81% to 5c in the first quarter, due to a profit warning issued in early February this year. The share closed at the end of its first day’s trade at 114c, but has declined steadily since then. On April 6 it issued a cautionary stating it was in negotiations that would affect its share price, but gave no further details. On Tuesday the share price dropped to 2c amid growing uncertainty about the company’s future.
Siltek slipped by 77,3% in the first three months of the year, to 25c from 110c. The main reason for this was a set of results put out in February following a profit warning in November. Siltek is an IT service provider and distributor. Datatec owns 23% after selling its company Workgroup in March 1999. Dave Lello, the CEO that joined from Datatec as deputy chair and took the helm to head up a restructuring late last year, said the company hopes to report a moderate profit by year-end.
One of the one-trick wonders of the listings boom, Trematon, struck platinum with an investment in telecoms group Intec before it went public in London. Trematon forms part of the consortium that holds a controlling stake in Intec’s South African parent, New African Technology Holdings. But after a warning from Intec that its revenues for the first quarter this year would be 20% below market expectations, its price more than halved in a single afternoon, from 2 to close at 72p. Trematon’s price duly followed. Between the end of December and March the price dipped by 76,7%, from R3 to 70c. The hammering of Intec may have been over-exaggerated. But, in a market where not even good news receives the credit it is due, it is inevitable that negative news of any sort is likely to have the doomsayers out with their shovels. So a full recovery in the short term is unlikely. But Trematon’s price has improved, closing at 83c on Monday, up 10c on the day.
APS Technologies listed in the development capital sector in 1999 at 100c and is now trading at 5c (Monday’s close). The company’s principal asset is the proprietary technology behind a pain-relief instrument that sends out electrical pulses that stimu- late the nervous system of the body, which in turn release the specific hormones required for the injury. It has the technology patented in 38 countries, but its past woes have included protecting the rights to the patent.
In August APS came out with a profit warning for the interim period, but the results for the December year-end showed a distinct improvement in performance. The group more than doubled turnover for the year to R34,7-million and reported an operating profit (after amortisation and depreciation) of R1,4-million for the year. A restructuring effort has been under way and internal controls have been tightened. But recovery is inevitably slow and this includes convincing the market of its credibility.
In its 1999 annual report much was made of two of its United States distributors, who, upon closer scrutiny, turned out to be much smaller than originally reported. This was clarified to the market with the release of the December year-end numbers, put out in late March. In the first three months of the year the value of APS declined by 75%, from a December price of 20c to 5c at the end of March. If you bought on listing and neglected to sell on the way down, there’s no point in selling now. For the punters, the size and the singular-product nature of the business makes this one very risky, even after a restructuring.
Specialist Financial Services group Axiam (formerly TBBH) fell more than 70% to R3,50 during the period. In January majority shareholder PSG Bank Holdings, which owns nearly 98% of the company, was investigating various issues linked to the dramatic decline in the share price. It has become involved in a series of investigations and is considering taking legal action against former staff. It also announced that sequestration proceedings against The Business Bank Share Incentive Trust have begun, as it appears the trust may have been involved in a number of irregular transactions, which may have led to significant losses to Axiam and its former subsidiary, The Business Bank Limited. It is hoping that an inquiry will produce facts that will enable it to recover at least some of the losses.
McCarthy Retail was one of the darlings of the JSE, but is now technically insolvent, hoping to raise R900-million by way of a rights offer. It plans to focus more on its core motoring and associated financial services businesses in future. The share fell 66% to 35c in the first three months of this year.
Management claims the failure of the business to maintain its share price is linked to its failure to focus on its core businesses. Its forays into furniture retailing, clothing and building supplies had a huge impact on group debt. The company is hoping its massive restructuring plan will alter the fortunes of its battered share price.