The revolving exit door on the JSE has become a standing joke among investors. Like in the Final Destination movies, everyone is looking around the room to figure out who the next casualty is going to be.
A Google search reveals that there are five Final Destination movies. Many people watched the first one and never bothered with the rest. Until I did the search I didn’t know there were five. One was quite enough for me.
Unfortunately, the long tail of rubbish that is typical of horror movie franchises is becoming synonymous with the reputation of the JSE’s small-cap space.
Afrox and Pioneer Foods are distant memories and Alaris looks set to go next. Tower Property Fund will soon be delisted, a loss of one of the most interesting small property funds. We know that Adapt IT is on its way out to Volaris, despite Huge Group’s best efforts to set new lows in corporate finance techniques. Huge ended up with an embarrassing 1.9% of Adapt IT after launching a highly publicised general offer to shareholders.
Remember Efficient Group and Clover? Of course you do — both solid companies that were whisked away by buyers with deep pockets. Anchor Group also bit the dust, choosing the private life rather than struggling with compliance costs and other restrictions in a market that doesn’t light much of a fire under small-cap growth stories.
My personal insurance is handled by Indequity, another simple and well-run business that is no longer listed.
Will Ascendis survive as a listed group, or be sold off piecemeal and capital returned to long-suffering shareholders? We can’t be sure of the future of the pharmaceutical and health products group.
Long4Life is also in doubt now, with the bombshell dropped in the latest results announcement that the company has received an expression of interest for all the shares in issue.
I feel frustrated that we are left with companies that remind me of flies sitting on the best cheese at the table. They are pests that annoy everyone
None of these companies is Apple or Microsoft, let’s face it. Still, there is a lot to be said for having a vibrant small-cap market in which local investors can work hard at achieving an edge and substantially outperforming the broader market. When it works, the results can be spectacular. (Mustek is up more than 170% over the past five years.)
It’s true that many other recent delistings have been unappealing companies that arguably shouldn’t have been listed in the first place. I doubt that anybody holds a midnight vigil over the loss of Wilderness or Verimark Holdings.
Gold Brands Investments was a shocker, listing in 2016, suspended in 2018 before eventually disappearing in 2019. Any experienced investor who read that prospectus could see that it was a disaster waiting to happen. This kind of outcome can put investors off the JSE entirely.
While lamenting the possibility of not being able to punt on Long4Life’s future, I feel frustrated that we are left with companies that remind me of flies sitting on the best cheese at the table. They are pests that annoy everyone whenever a Sens announcement is released.
Luxe is the sad remnant of Taste Holdings, the group that famously ruined an excellent track record with Scooters Pizza by embarking on a foolish plan to introduce and scale Domino’s Pizza in SA. Some people just don’t learn in this space, with private equity group ECP happily taking Burger King from GPI despite the incredibly onerous Competition Commission conditions. I wish them luck.
Just last week, Luxe announced the resignation of six directors, including the CEO and CFO who will move into divisional positions.
With a market cap of R23m, why bother to stay listed? Even in a year that has been the best in recent memory for the JSE, Luxe is down nearly 12% year to date.
Nutritional Holdings at least brings entertainment value to Sens.
The announcements often remind me of the shock that I experienced as a teenager watching midday reruns of Jerry Springer in the days before my family could afford DStv. The company website looks like a high school IT project and the logo looks like it was designed in Word.
The problem for the JSE can be partly blamed on macro conditions. Many SA groups like CMH have struggled to achieve earnings growth, trading on a valuation that focuses on the dividend yield which doesn’t ascribe much value to growth prospects.
There are still nuggets. Santova is a favourite of investors, boasting global exposure and a market cap of R535m after a 35% rally year to date. Trellidor has a market cap of R314m but has strong underlying businesses. In a story that is sadly far too common, Trellidor suffers from being highly illiquid.
Small-cap enthusiasts are becoming increasingly interested in Australia, where the market for new listings is booming.
We can only dream.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.