Labat Africa, a small-cap stock with a chequered history in changing operational and strategic tack, has become a point of contention among small-cap punters debating its latest iteration as a technology company.
The market is divided sharply between the sceptics, who stress Labat’s long-held habit of promising big and delivering little, and the optimists, who reckon the group has finally settled on assets that can deliver sustainable profits. With the share price between 6c and 7c, reflecting a low single-digit earnings multiple on a trailing and forward basis, the sceptics are winning.
The FM this week offers two distinct cases for Labat.
The bull case
In the micro-cap corners of the JSE, reputation tends to have a half-life of forever. Once a company has disappointed the market, scepticism becomes structural. Anchored to the ghost of yesterday, investors continue to price businesses as they were, not as they are.
Labat Africa is a case study in this pathology.
Even after a clean audit, a decisive strategic exit and an interim earnings print most listed companies would envy, the market refuses to update its view. Thin liquidity and visible overhangs are endemic to the micro-cap end of the JSE, but at about 6c a share, Labat trades on a market capitalisation that implies financial ruin. The numbers tell a very different story.
The question is no longer whether Labat has changed. It has. Cannabis is out; technology is in.
For the year ended May 2025, Labat reported audited headline earnings per share (HEPS) of 5.81c a share. Those earnings were not the product of fair-value uplifts, cannabis revaluations or accounting alchemy. On the contrary, the audit removed a R62m “gain on bargain purchase” arising from acquisitions completed below NAV. What remained was operating profit largely generated by the group’s newly consolidated technology businesses.
Then came the interim results. For the six months ended November 30 2025, Labat reported HEPS of 3.64c a share. Revenue rose 353% to R151m and operating profit reached R97m. The market is again pricing Labat below one times its interim earnings annualised (7.28c a share).
For such a valuation to be rational, one of two things must be true: the earnings are nonrecurring/fictitious, or the balance sheet is toxic.
Based on the audited and interim results, neither proposition holds.
Much of Labat’s historical discount rested on governance concerns, related-party complexity and a muddled cannabis strategy. That chapter is now closed.
On November 27 2025, Labat finalised the disposal of its health-care assets to 64P Investments for R10m in cash. The R10m transaction delivered liquidity. More importantly, it removed a division that, despite prior cautionaries suggesting profitability, generated a small audited loss. The company did not sell a crown jewel cheaply; it exited a loss-making legacy business for hard cash.
In substance, this was a full strategic reset. That’s why legacy shareholders Brian and Stanton van Rooyen have stepped off the board.
Labat now is a technology distribution and micro-electronics group.
As at end-November, Labat reported NAV of 25.13c a share. At 6c, investors are paying about 24c for every rand of book value. Importantly, the asset base is dominated by R360m in inventory and R301m in trade receivables (hardware, micro-electronics and chips), offset by R327m in trade payables. This is the working capital profile of a distributor scaling rapidly, not a company in distress.
Yet, the market treats these assets as if they are illiquid or illusory.
Significantly, the vendors of Classic International and Ahnamu Investments, the businesses now driving the majority of group earnings, elected to take equity in the 7c-10c a share range. Both are profitable operating businesses injected into a listed vehicle at valuations above the current market price, resembling a reverse takeover.
There has been a major increase in trading volume over the past six months, with a fair amount of price-taking. It is uncertain whether this is a legacy shareholder exit or a vendor realising cash.
On December 22, Labat released a cautionary announcement that later elaborated on advanced discussions regarding a transaction with an AI and technology company with operations and a significant footprint in the Southern African Development Community.
New-look Labat is using its listed platform to pursue assets aligned with its technology-focused operating base
The timing matters. New-look Labat is using its listed platform to pursue assets aligned with its technology-focused operating base. There may be a near-term overhang if equity is issued as part of the transaction — a familiar feature of growth at the market’s micro-cap end.
The relevant question is not dilution in isolation, but whether any issuance is accompanied by incremental earnings, scale and strategic depth.
At an earnings multiple of under one, 0.24 times book value and 0.3 times net current assets, investors are not paying for growth but for optionality. Clearly the market’s scepticism about Labat was once justified. Today, it appears dated. There is a disconnect here that doesn’t come around often … nor does it last forever. — Marlie Chunger, small-cap analyst
Marlie Chunger a small-cap analyst, owns shares in Labat Africa
The bear case
On December 10 2025, Labat Africa released a Sens announcement noting the retirement of its founder, Brian van Rooyen, alongside the resignation of a nonexecutive director. At the end of the announcement was a sentence that at first glance appeared routine, almost ceremonial. Shareholders were told that Van Rooyen “leaves behind a strong and capable organisation, positioned for sustainable growth and continued transformation”.
In isolation, the sentence reads like a customary expression of confidence at the close of a long tenure. In context, however, it functions as something far more consequential: a statement about the company’s current condition and future readiness. Because it was issued through Sens, that distinction matters. Sens is not a farewell card. It is a regulated disclosure mechanism governed by JSE listings requirements, where information is expected to be factual, balanced and not misleading by tone, emphasis or omission.
The timing of the statement is the first point of tension. Just days earlier, on December 4, Labat had announced the resignation of an executive director after “recent developments arising from the proposed disposal of its health-care segment”. That disclosure was explicit. The leadership change was not routine or planned succession; it was transaction-driven, arising directly from the consequences of a strategic exit.
Between these announcements sat the company’s AGM, which provides critical context. At that meeting, Labat did not merely rotate directors. It reset its governance and capital framework. Shareholders approved the appointment of a new CEO alongside new executives and nonexecutives. They also approved sweeping capital authorities, including the power to issue shares for cash, to exceed the customary 30% dilution threshold and to enter into broad funding arrangements.
Most tellingly, shareholders voted overwhelmingly to terminate the company’s long-standing auditors, Khumalo Xaba Xulu Auditors. In their place, they approved the appointment of P Mapfumo Accountants & Auditors. Auditor changes are not cosmetic events. They are among the most consequential governance actions a listed company can take. They typically arise from strategic inflection points, breakdowns in alignment or the need for an independent reassessment after periods of complexity or structural change. Whatever the underlying rationale, replacing auditors at the same moment as replacing leadership, reconstituting the board and expanding dilution authority is not the signature of a stable, settled organisation.
“Strong and capable” implies operational resilience, governance continuity and capital sufficiency. Yet Labat’s own disclosures describe a business that has recently exited a core operating segment, recognised impairments, reconstituted its board and executive team in rapid succession, changed auditors and sought maximum flexibility to raise capital. These are the actions of a company in transition, not one already positioned for sustainable growth.
The claim of being “positioned for sustainable growth” carries an even higher evidentiary burden. Sustainable growth implies a business model capable of funding itself through operating cash flows or disciplined reinvestment, not one reliant on repeated equity issuance for optionality. In Labat’s trading statement for the six months ended November 30, the headline numbers are striking: basic and headline earnings up more than 100%, with NAV per share swinging from a negative base to 25.13c. Yet the trading statement is explicitly unaudited, provides no operating cash flow disclosure and reflects percentage changes off a deeply depressed base. It explains why the balance sheet looks better than it did previously. It does not, on its own, demonstrate the existence of a durable, cash-generative business.
The market appears to understand this distinction. Despite elevated trading volumes on the day of the announcement, the share price remains well below its recent highs and closer to its 52-week low. Investors have not repriced the company as though sustainable growth has been secured. They have treated the update as a reset, not a breakthrough.
What sharpens the concern further is the absence of readily accessible corroboration. At the time of writing, Labat does not have a functioning corporate website. There is no central working platform through which investors can independently assess strategy, operating assets or management commentary. When Sens announcements assert organisational strength without accompanying operational evidence, the imbalance becomes material.
Leadership legacies are not measured by adjectives. They are measured by balance sheets that generate cash, governance structures that endure change, auditors that inspire confidence and strategies that deliver before they are declared successful. Until those elements visibly support the claim of organisational strength and sustainability, describing the company in such terms is not evidence-based disclosure. It is aspiration presented as fact. — Jeandré Pike
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