The JSE universe is getting smaller. With very few new listings, and many more market departures likely, IM will have a smaller number of listings to peruse and write about in the months — maybe the years — ahead. I don’t have the time or the inclination to morbidly count the number of JSE listings. But I can tell you that my 2001 JSE Handbook is as thick as a copy of Moby Dick, while the latest edition of the handbook is not much thicker than my copy of Of Mice and Men.
Okay, I exaggerate a tad. But the point is that the JSE is not the most hospitable place these days. Companies are more likely to want to leave the bourse than get on to. The cost of listing and regulatory burdens — coupled with the jaundiced sentiment that pervades the investment community at this nasty juncture — will certainly snuff out enthusiasm for remaining on the market.
Last month I highlighted the "deep value" proposition in diamond miner Trans Hex Group, questioning a possible value of assets that had been put up for sale. Perhaps we will never know, because Trans Hex has since pitched a buyout offer to minority shareholders that, if successful, will cause to it be delisted from the JSE after a tenure of nearly four decades. I doubt too many Trans Hex shareholders will reject the buyout overtures.
Elsewhere I do still see the odd delisting proposal (small property groups Adrenna and Ingenuity) and I suspect this trend will continue while market sentiment remains jaundiced. Other companies are winding down after selling operating assets, such as Delta EMD and Niveus Investments. I also notice proposals to consolidate some of the smaller property counters.
I watch an increasing number of companies pursuing sizeable share buy-backs. While this is likely to benefit shareholders in the longer term, it must be quite a temptation to take the next logical step and pitch a buyout offer to shareholders.
I can’t imagine executives or owners with intimate knowledge of a business (and potential for prospering in better times) are unlikely to stand around and watch while the market applies desultory multiples of three, four or five times earnings. One small cap that I hold in my portfolio has generated consistent earnings over five years that collectively surpass the current share price.
This kind of situation makes it easy for the owner/manager to dangle a premium-priced buyout — which is not something I would begrudge owner/managers of any of the small cap shares I still hold in my portfolio.
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