If I have been feeling just a little short-changed by investment company Reinet skimping on the opportunity to pay a bumper special dividend, then please allow me to temper my exasperation. At least I will be getting an ordinary dividend from Reinet, and I can be absolutely certain the cash is being well looked after until a decision around mobilising that enormous heap of capital is made.
Sometimes perspective is useful, and Labat Africa, a micro-cap stock that has been reinvented (or rather reimagined) several times in the past two decades, certainly made me look askance at an event investors take absolutely for granted. In fact, what has transpired at Labat might be disturbingly precedent-setting, presuming the JSE does not intervene on behalf of many disgruntled shareholders.
I’m not disgruntled as much as astonished at developments. Labat is a small flutter. But other small-cap punters seem to have backed the story with a bit more conviction — and capital. They will be seriously pissed. A quick summary: Labat, on June 23, surprised the market by announcing a 1c a share maiden dividend. The share has ranged between 1c and 5c over the past six months and was, indeed, trading between 2c and 3c at the time of the dividend announcement.
That’s a helluva yield … on paper. The last day to register (LDR) in Labat stock to secure the maiden dividend was last Tuesday. Judging by recent trading volumes in Labat, more than a few punters took a liking to this rich yield and I know that existing shareholders — major shareholder Alpvest Equities for one — added significantly to their positions. Labat, which has a technology bent as its latest operational iteration, has been issuing strong financial results and trading updates. But the market has remained sceptical, which is quite understandable bearing in mind that Labat’s efforts at morphing into a sustainably viable business have floundered more than once.
The last trading update, issued in late April and covering the year to end-May, showed revenue up almost 150% to R511m and headline earnings more than doubling to 11.5c a share. While the market remained wary of these numbers, the dividend declaration to an impartial observer would underline the veracity of Labat’s new technology operations as well as their cash generative prowess (to an extent, at least).
Come Thursday last week, Labat unexpectedly published a “notification of extension of dividend timetable”. Maybe older punters can correct me here, but I have never seen anything like this before. I have seen dividend notices adapted to offer scrip alternatives or to revise a date because of a public holiday. The immediate problem is twofold: first, there is no revised dividend timetable provided, which is not terribly reassuring for anyone who was banking on the payment. Second, the announcement was made two days after the LDR and four working days away from the dividend payment date on Monday August 3.
This is bad form, verging on criminal because shareholders are, in a sense, being robbed of the timeous delivery of a promised payment. Labat’s rationale for its revised timetable is tough to fathom. The group claims that after consultations between the board, management and the external auditors during the finalisation of the annual audit, it was decided to extend the dividend timetable and incorporate it into the audited annual financial statements (due at month-end). “The board believes that aligning the implementation of the dividend with the publication of the audited annual financial statements is in the best interests of the company and its shareholders.”
I wonder how many shareholders agree with that? Labat argues this approach will “ensure that shareholders have access to the company’s latest audited financial information prior to implementation of the dividend”. I’m really not sure why I would need access to the latest audited financial statements when shareholders were told, on the occasion of the dividend declaration in late June, that “the board believes this milestone reflects the continued execution of the group’s strategic objectives and the growing contribution of its investments and operating businesses, including [subsidiaries] Classic [International Trading] and Ahnamu [Investments]”.
Labat also believes that revising the dividend timetable reinforces the company’s commitment to sound corporate governance, transparency and shareholder protection. Seriously? This from a company that has revised a dividend timetable without bothering to give any indication of when the dividend might actually be declared, and what the status is of shareholders who bought up stock based on the dividend announcement.
I know of one shareholder, a veteran of the financial services industry, who has written to the JSE’s market regulation and surveillance departments to formally request cancelling and reversing his purchase of parcels of shares in Labat at 3c, which were based on the cash dividend announcement. He firmly believes the JSE should force Labat to adhere to the original dividend timetable, as well as give all buyers of the share between the dividend announcement and postponement dates the option to reverse and cancel their shares.
I think the onus is on the company to step up. Communicate a clear revised dividend timetable along with a date for the year-end results publication. I’m not going to hold my breath, though. Labat also committed to buying back its own shares earlier this year — an obvious allocation of capital, considering a claimed NAV north of 30c a share. But the company hasn’t bothered to indicate whether it has indeed been mopping up scrip. Something reeks.