Gencor shareholders met to vote on a resolution that would conclude a drawn-out unbundling process that could prove the end of the road for the strategic investment holdings company. The shareholders will vote on whether to unbundle and distribute Gencor’s only remaining investment: a 46% stake in Impala Platinum Holdings.
This involves distributing 30,6-million shares to Gencor’s shareholders. At Thursday’s midday trading price of R392 a share, this translates to a valuation of just less than R12-billion.
In April 2000 Gencor unbundled its interests in Goldfields, Goldfields of South Africa and Standard Bank Investment Corporation. The latest unbundling chapter, if approved as expected, will be completed on June 18.
Once complete, Gencor will pay R460,5-million already set aside to the Asbestos Relief Trust. It will then be left as cash shell clutching R99-million and be removed from the platinum index it currently occupies.
After this the JSE Securities Exchange can use its discretion to delist the entity six months after the completion of the unbundling process.
The redistribution process will improve Implats’s liquidity. Since Gencor held these as a strategic investment and did not trade them, the move will unleash just under half of Implats’s 66,6-million shares to the open market.
But since Gencor is largely held by institutions, with individuals accounting for less than 10% of investors, it is plausible that the institutions can continue to hold on to their shares, or sell off an insignificant portion. This is especially true because platinum is such a lucrative growth area.
Another deterrent is that, with a share price that can go as high as R400, entry into Gencor is only for the big and loaded. Implats has an option of splitting its shares to lower the price, but is unlikely to do so precisely because it wants to attract the big and loaded.
Size matters
A mild revolution that has been overlooked by investors in the JSE Securities Exchange has been in small caps, those companies outside the Top 100 by market capitalisation. These shares have been found to offer returns of 16,8% in the year to March, compared to a negative 27% return from the All Share Index. Small caps tend to perform out of the glare of analysts and investors, or that ethereal and amorphous entity called the market.
A Johannesburg-based trader notes that to pick a good small cap, one needs to distinguish between investing in value and investing for growth. Investing in value is achieved through studying a company’s business models and its fundamentals and assessing whether it is trading at fair value.
The rise in price over time will be the source of gains. Investing in growth is when one invests in a company that has an established track record of growing earnings and is unlikely to disappoint.
So look and think, before you leap. In the year to March, the small cap index has lost 4,79%. The only other better performer was the resource Index Resi20, which shed 1,72%. The Top 40 is down 17,48% for the year.