Fancy buying a share for 20c in each rand’s worth of value? – Daily Newsletter

Published on:

30 May 2014, 9:58 am

Hi there,

Everyone loves a bargain. Except in the share market. Shareholders are never happier than when recently bought counters rise in value. Or more miserable than when the price falls. Which is actually completely irrational. Investment means taking a longer-term view. The less you pay for something today, the greater its return will translate into at some future date. But that's not how Mr Market thinks.

We came across a perfect example yesterday in construction group Esor. During the 2007 boom, Esor shares peaked at over 900c. Last week they changed hands for 29c. Even after taking a recent special dividend of 38c into account, that makes the stock a negative ten-bagger. Like a wildly swinging pendulum, Esor shot sky-high during the optimistic stage of the cycle – and has now over-corrected.

@pierre_puren @MatthewFerrey These things tend to over-react in short-term. I'd wait for speculative heat to leave system before buying.
— Alec Hogg (@alechogg) May 30, 2014

The company's long-serving CEO Bernie Krone says Esor's tangible net asset value is 168c a share. That's what you'd get out if liquidating the whole shop today. So at the current 34c share price, you're getting the assets for 20c in the rand. Krone has no idea why the market has taken such a dim view of his company. What he does know is the market cap is R134m – and Esor stands to receive something over R200m from a settlement with Eskom over Kusile with another R100m "agsterskot" due from the recent sale of its geotechnical division. Mr Market is terribly depressed about Esor. His mood won't last forever.

Best,
Alec