Vunani - see through the BS

I noticed this week that empowerment financial services firm Vunani has completed its second acquisition in the last two weeks buying an additional 31% in Peregrine iQ the fund management business held by Peregrine and a 51% stake in something called the Jala Group.

With that in mind I had given it some serious consideration as a potential investment as a bit of a rebound and thought I would take a closer look:

A couple of observations here:

• Peregrine are a very smart bunch of people and in the back of my head I am wondering why they are allowing Vunani to end up with 51% of this business? These two firms have a funny relationship with one another and I wouldn't be surprised if Peregrine were quite happy to turn Vunani into their patsy for something they don't want.
• Peregrine can't really place much value on a business which supposedly has R11bn in assets under management - the transaction didn't even warrant a cautionary or a disclosure of the level of investment. For a tiny little business like Vunani (in the listed sense) that's odd.

But it is this Jala Group thing that really stoked my curiousity and got me digging around a bit...

Ok so here is the deal - 28 May Vunani says it has bought a 51% stake in this thing called the Jala Group.

• This Jala Group thing - a quick Google search doesn't come up with much except a bunch of media whores reproducing the press release that Vunani put out. More curious is that if you go to the website Jala.co.za the page has already been rebranded as Vunani Technology Ventures... but no real sign that there was ever any kind of cached web presence for these guys 20 or 30 days ago. Seems to ring a little hollow. Wonder if there was anything there in the first place?
• For an IT company with a track-record of just 9 months, this is a bit peculiar. If there is one thing IT companies are good at it is in leaving a track record of their transactions and skills on the various search engines.
• The site itself is designed in HTML. I can't think of any graphic designer who would design a new website - it has to be new because it has all been rebranded from Jala to Vunani in the last month - who would design anything in HTML.
• A quick look at the LinkedIn profiles for the directors makes for interesting reading as well. The guys had updated their employment profiles in April 2010 (i.e. before the market was informed of the transaction). Surely there has to be a disclosure issue here?
• Apart from Maree and McKellar who have something of a track record in IT, the associates seem to be a little lightweight. They have a psychologist for some bizarre reason and then they have Alon Hendel whose claim to fame (according to the website) was launching Tycoon.co.za that light-weight entrepreneurs thing for Moneyweb. No offence but we know how that ended up
• I don't put too much faith into Cipro but a quick search reveals that the Jala Group was registered in June last year and provides "Supply of Stationary and Related Services"
• There is no registered business called "Vunani Technology Ventures" or anything along those lines which has a link to Vunani. I appreciate its a new "re-named" venture but still the business needs to be registered.
• For an empowerment company Vunani Technology Ventures seems to have an awful lot of white faces on its board

But the real kicker for me is the claim that Jala / Vunani Technology Ventures has been helping some of its clients since April 2008. That's odd because the business only came into being at the end of last year.

In other words the Jala Group is not really a business. It is a couple of people who get asked for some advice from time to time and may sit on a few boards but there is very little in the way of assets here. The IP for this business sits in the hands of Maree and McKellar and whoever they are mates with and if they decide to walk away there is very little that would be appear to be classified as an "asset" at the moment.

And THIS is the problem with Vunani - they are so busy cobbling together shit that they don't stick to what they could be good at.

As tempting as it is that Vunani is suddenly coming good the numbers still don't give any indication that they are on the recovery path - rather the acquisitions are a case of bullshit trying to baffle brains.

For the year ended 31 December

• Turnover of R121m plus R15 in other income produced an operating profit of R8m
• Cash negative from operations of R135m out the door
• Net cash - R3m in the bank. If Vunani sneezes or has one bad month its screwed
• It obviously didn't use its own cash resources to pay for either of these acquisitions so does that mean more debt has been taken on a group which has just had to restructure?
• Vunani's debt effectively sunk it - there is a note in its March report saying that if its debt wasn't restructured it was effectively game over. The debt got restructured but then it runs around doing odd things rather than getting its house in order.

At first glance this might have the look of an interesting punt but if you peel back the curtain even a little bit the risk-reward trade-off is not even remotely attractive.

RE:CM and Calibre

For those who buy into long-term value investing there is an interesting product listing today on the JSE that might pique your interest.

It is a closed end fund managed by leading value investor Piet Viljoen from RE:CM and is trading under the name RE:CM & Calibre (RAC) on the JSE.

Effectively the fund will be managed by these guys (who hold a high level of ownership in the underlying fund) and they'll be kicking off with R450m in cash.

The mandate for this fund is more flexible than a typical unit trust and can invest in debt, unlisted investments etc.

Don't expect fireworks from it initially but I will probably try and pick up a few during the course of trading today.

Market ramblings

I haven't blogged in a while - been sitting back watching the fun and games on the market and trying to work out where this whole thing is going.

Some very interesting things happening at the moment and volatility seems to be the story of the day.

I battle to find value in this market at the moment. I don't like what is happening in Europe and I think there will be some fall-out to come.

Having said that, the Dow below 10000 almost feels "orderly" rather than out and out panic and that's ok.

There are 3 stocks which catch my eye at the moment and investors might want to consider:

African Bank
Long been a popular choice in my portfolio. Results were not great and the market has turned a little sour on them but they have a lot of positives that could be taken out of these results. Ellerines systems are sorted, they are growing again and the demand for their kind of credit is coming back slowly. But more important than all of that is their ability to generate cash - and quickly!

I would buy it at under R30.

Buildmax
Brait reported earlier this week and they managed to keep this one out of their reporting. This coal mining contractor has been a disaster for the private equity firm falling from R1.15 to 30c and now Brait is having to underwrite a R150m.

35c, a rights issue on the cards. This is a story to watch.

Reinet
I've liked Reinet. Done bugger all except mirror British American since it was listed and its off about 15% in the month but in this market, this might not be the worst defensive play around.

Would be adding this to the portfolio at the moment.

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Another interesting thing I picked up this evening is that Zimbabwe is allowing the establishment of four new newspapers. I think this is a further sign that normality is returning to this country which will have a positive spin for many of our resource operators.

Finger trouble, burning Europe and Abil fried

What an absolutely intriguing few days on world markets.

A bit of random finger trouble at Citi sends the markets into a tailspin and the Dow drops nearly 10% before you can blink. This is summed up by the literal carnage in Greece and then one of our favourite banking stocks (African Bank Investments Limited - Abil) gets smashed today.

Absolutely intriguing!

Finger Trouble
Make no mistake - Thursdays nonsense is going to piss some US politicians off in a big way. Here they are pushing for regulatory change and trying to convince the public that they are hauling some bankers over the coals and one prick can't decide whether he is selling millions or billions of stock and he sinks stockmarkets across the world.

Story for the rest of the year invariably has to be the politicans against the bankers.

I thought Henry Blodget summed it up really well in this post. Things are overcooked at the moment

Europe is in trouble
Ok that's a given, but I don't think it is the debt issue which is the problem but rather the structural issues facing a number of these economies - they cannot create jobs.

If you think about it, a country going broke is a shrug of the shoulder event. Technically the US is broke and will be for eternity.

Iceland very definately is broke as is Greece... but who actually cares? Ireland, Spain, Portugal and Italy... debt is a way of life get over it. The real question is how are they going to tackle their unemployment issues.

Here are some interesting stats which I've dug up around unemployment in a couple of Europes major regions:

• Spain - 20% unemployment
• Italy - 8.6%
• Portugal - 10.10%
• UK - 8%
• Ireland - 12.7%
• France - 10%
• Poland - 12.9%
• And then Germany for some context - 7.5%

While everybody is jumping up and down about the debt issues in the PIGS and Ireland, I actually think that Spain and France are the two flash points to watch.

Greece has a population of 11 million.

In contrast France has around 63 million people while Spain has around 41 million. Look at a map of Europe for a moment. Spain cannot create the number of jobs it needs - the job seekers can only push one way - France.

Without oversimplying it - if you think a couple thousand Greeks know how to riot can you imagine what it will look like with a couple hundred thousand French and Spaniards venting their fury...

I would be watching these two economies very closely for changes in the social landscape.

African Bank Investments Limited (Abil)
This is one of my favoured banking shares in the South African market - great company in a great sector.

Anyway the share got slaughtered today - off about 5.5% to close at R32.15.

Those pricks at Deutsche Bank apparently put out a pretty negative analyst report earlier this week which didn't help sentiment which was a bit of a pre-cursor to the following trading update out of them today:

Shareholders are advised that headline earnings and headline earnings per share for the period are expected to decline by 2% relative to the R937 million and 116.6 cents per share respectively reported for the first six months of the 2009 financial year. The African Bank business unit is expected to report a decrease in headline earnings of 5%, whilst Ellerines is expected to report a 6% increase relative to the results reported for the six months to 31 March 2009.

A whole 2%... how frightening...

Well of course it is down, the country is still losing jobs (190000 in the last quarter). Guess what - you don't get a loan (even from Abil) if you don't have a job.

All these analysts are so focused on Ellerines - guess what trading has actually improved in the last six months... wankers.

Personally I still like the stock. While the rest of the big banks with their investment bankers (who can't even push the right buttons) have to worry about nasty politicians and regulators wanting to check out all their cavities, Abil can get on with the business of lending and THAT is what they are good at.

Long dollar, short euro

"In the next months there will be many demonstrations, nobody knows what really is going to happen, But people know there is no other way than to come down into the streets and protest"...

... that was the message from one of the protesters involved in riots in Greece earlier today.

This is serious kak methinks, and I can't see how it won't spread to at least Portugal and Spain over the next week. I read a report that Spain's unemployment rate is now well over 20%... this is not something that gets addressed quickly and even a hint of panic and people will start pulling money out of the banks.

The Euro I reckon is toast unless the regulators take some serious action to try and co-ordinate their efforts quicker. With that in mind I've gone long dollar, short euro on Friday. I should have entered the trade earlier but I reckon it is now terminal...

The euro recovered a bit late on Friday night on speculation that the Greek bailout will be sorted out over the weekend but if Spain and Portugal fall over early next week then there is going to be carnage.

Not too much else looking that attractive is there?

SA small caps

I see that there has been quite a lot of talk about South African small caps in recent weeks. Probably because the market has been so kak that people have nothing better to talk about.

With that in mind, I thought it would be fun to look at some of the small-caps which appear on my screen and see whether other traders agree?

Beige Holdings
I have been tipping this one for ages and so far it has gone nowhere fast. This should in theory be an easy stock to double your money on, but geez I have been saying that for how long and I'm still waiting.

ISA
This is a good stock in a growth industry. Cash generative, no debt and it actually pays a dividend - a rarity in the IT sector. Internet and IT security is going to continue to be a key industry going forward. ASk anybody who has had their home or work PC or mobile device crippled by a computer virus and you will appreciate why a business like this has so much to offer and will consistently be able to achieve ongoing annuity income.

Interwaste
I walked to the shops this morning and was aware of all the uncollected rubbish on the pavement from last weeks municipal strike. Its unpleasant to live in a decent neighbourhood and be surrounded by flies and rotting waste and there is not a hell of a lot that you as the ordinary consumer can do about it.Now imagine how much waste is being generated by businesses and more importantly how much it costs to deal with that waste. This share hasn't exactly covered itself in glory since being listed, but its a good industry to be in with very high barriers to entry.

Buildmax
I was actually checking up on my Brait shares and I was reminded that the Brait guys paid R1.50 a share for Buildmax. Now its trading around 50c a share. I still think it is a good story for those with a longer-term appetite.

Anybody got any better suggestions?

Goldman Sachs kicked in the nuts

I remember watching a movie once where a new kid starts a school after being bullied at the old school. Sure enough this geeky looking kid gets bullied on the first day and nobody wants to hang around with the local whipping boy. He goes home and asks his dad (or maybe it was his uncle?) what he should do because he can't go through another year of torment.

The advice he gets is very simple: "It doesn't matter whether it is a sneak attack, you walk up to the biggest bully on the playground and you kick him as hard as you can in the nuts in the most public place. If he drops, your year has been made and you will be the hero of the school".

Judging from the fun and games in the US on Friday, I reckon somebody over at the SEC has adopted a similar kind of strategy to "right-size" banking giant Goldman Sachs.

Much like it doesn't matter whether or not the bully has psychological issues or problems at home, I don't think that the SEC is all that concerned about the merits of their case. They've snuck up on an industry giant which believes it is untouchable and possibly fired the first salvo in a carpet bombing exercise aimed at the investment banking industry.

Will this even dent Goldman Sachs? Probably not - the guys that work there are too clever to even blink.

But for the rest of the industry, a very clear message has been sent.

The start of a genuine correction?
I'm undecided on whether or not markets are expensive and I think it is folly to try and play that game. Personally I probably wouldn't be buying too many shares right now if I was looking to make money in the next 6 to 12 months.

In fact if I had to hazard a guess this little assault on GS could be maybe the right kind of message to market participants that it is now time to step back and reassess the landscape.

How many compliance managers at the various investment banks and brokerages are scurrying around this weekend trying to double check that their systems are in place? How many are going to be advising their traders that the regulators are being a little nosier than expected and maybe they need to pull in any potential troublesome trades / activities?

Another interesting thing which was missed is that the VIX actually rose to its highest level in 12 months on Friday.

While I'm sure it certainly doesn't help (the traders) that regulators are being nosy and digging into the activities of some of the big guns on Wall Street, maybe it is just a sign that there is some downside risk in the near-term?