There are long shots … and then there are long shots. My slim hopes of advancing further in the Fish Hoek Tennis Club champs singles last week ended in a dull spasm after a hard-fought, two-hour epic against a young coach. My right foot cramped at a curious angle at a critical juncture — seven-all in the third set tiebreak.
I could have been a contender, and that might have been the best singles game I have played since an infamous match against a highly rated Grey High boy in 1983. But those are sport’s cruel breaks — inevitable, even with the benefit of alcohol and a cocktail of my favourite anti-inflammatories. My compadres were full of praise, but diplomatically dissuaded me from entering the open singles competition ever again. One older fellow described the ordeal as the most painful thing he had witnessed in sport since the nonredeeming final Test of the 1974 Lions rugby tour.
On the investing front, thankfully, I seem to have learnt the value of holding a more prudent line when it comes to long shots. Readers might remember that back in January the FM ran a story about (re)inventive microcap Labat, which has probably been through more operational makeovers than any other company on the JSE. We presented two opposing (bull and bear) views on the company’s latest iteration as a provider of technology applications.
That week, in this very column, I cautioned that I remained largely undecided about the new-look Labat after so many years of unconvincing (and unprofitable) morphing. I indicated that temptation would be limited to small lines of Labat shares — mainly for “sheets and squiggles”. It’s been fun (sometimes) watching the trading updates and results pegging earnings in excess of the ruling share price and seeing the company issuing heaps of shares at prices markedly higher than the market price.
But anyone who has backed Labat with any vigour as a potential big winning ticket must be seriously fretting at this point. First, doing a Google search on some of Labat’s recent acquisitions does not exactly garner the detail investors would require in trying to determine the calibre of a company. “Page cannot be reached” and “bad gateway” are less than reassuring responses.
Matters took a rather nasty twist last week when Labat’s board unceremoniously removed Farook Paruk as a director with immediate effect. The company said the decision followed a review of certain governance matters relating to Paruk. The board noted that Paruk is currently the subject of an external investigation. Labat said no conclusions had been reached yet and it would update shareholders if more information became available.
I’m not going to wade into the allegations. Readers can do their own research on Mr Paruk. But I do know that it might have taken a missive from a shareholder who had stumbled on alleged misdeeds to bring the matter to the board’s attention. Paruk, significantly, was appointed chair of Labat’s audit and risk committee on April 20. When that appointment was announced, Labat confirmed that “a fit and proper assessment has been undertaken in respect of Mr Paruk and that it is satisfied with the outcome of such assessment”.
Famous last words. How Labat’s board missed what a shareholder divined from a simple Google search is quite beyond me. Whether the JSE will take action remains to be seen. It does seem to be a major oversight by the Labat board.
Officially, a JSE-listed company and its sponsor must disclose any criminal charges against a nonexecutive director, undertake governance assessments and ensure ongoing compliance with the listings requirements. Any response would obviously depend on whether the charges are material to the company, the director’s role and potential reputational or market impact.
In essence a company director’s immediate obligations in terms of “fit and proper” declarations clearly cover past or current issues such as criminal offences — particularly dishonesty, fraud or moral turpitude (an accusation once levelled at me by a Sunday school teacher when I confessed to using collection money to play pinball). Any charges involving dishonesty, fraud or corruption are likely to require immediate disclosure and board action.
Naturally, faith in Labat’s board has taken a dive, as reflected in the share price, which is now bid down at 2c and offered at 3c in plenty of volume. This, of course, boils down to dismissive distrust — remembering that Labat claimed earnings of more than 11c a share and NAV of 34c a share in a recent trading update for the financial year to end-May.
I relish a wild fling as much as the next guy, but I might watch and wait before hurling even petty cash at Labat at current prices. Winning back market trust will take an enormous effort, and I’d be inclined to say “mission impossible” unless there is a huge outreach to the market in terms of convincingly elaborating on Labat’s underlying assets and corporate governance.
Perhaps one small step in the right direction would be to update shareholders on the buyback exercise that was set to run between mid-February and end-May. At the time of the share repurchase announcement, Labat’s board held the view that the prevailing market price (then between 5c and 6c) did not reflect the intrinsic value of the company’s underlying assets, strategic positioning and long-term growth prospects. The board also indicated that the repurchase programme reflected a strong conviction in “the company’s fundamentals and its disciplined approach to capital allocation”.
Surely the current buy-sell spread amplifies the board’s earlier view on value, and, watching daily trading volumes, goodness knows there has been ample opportunity to mop up the panicky hands. Strange stuff, indeed.