Diamonds & Dogs: Cash is King

Diamond: Afre (US6.50c, WTD: +25%, YTD:  25.00%, Mkt Cap $14,113,054)

Diamonds & Dogs says Cash is King…not Customer but C$SH. Any Analyst worth his salt will attest to that. The first thing any investor looks at/for when they get hold of the annual report is the cash in the bank. Cash makes or breaks a business.

Quality of earnings is another key aspect with investors looking at how easily a company’s profits can be translated to cash…typically signaled through the amount of dividend payouts.

Only BAT has signaled that its earnings are near cash with a 79% payout ratio in 2012.

On another note, there are also a number of CEs who are loved by market and thus help the perception on their companies and ultimately share prices. Locally names like Joe Mtizwa formerly at Delta and now a significant shareholder in Starafrica and now running his management consulting company. Zondi Kumwenda now CE of combined Zimplow Holdings Ltd, Canada Malunga who will be back at rebranded Masimba Holdings are some of the market favourites.

Globally, highly rated CEOs include Tim Cook of Apple, successor of the late Steve Jobs. 

In fact Steve Jobs was so good that It comes as no surprise that Harvard Business Review judged him the the best-performing CEO over the past 17 years was Steve Jobs. Steve was so good that many months after his death, we still worship (Diamonds & Dogs included) Apple products especially iPhone, iPad and the Mac range.

From 1997 to 2011, Apple’s market value increased by $359 billion, and its shareholder return experienced average compound annual growth of 35%. That remarkable accomplishment is likely to go unbeaten for a long time.

Jeff Bezos of Amazon.com is also up there. Under his leadership, the company delivered industry-adjusted shareholder returns of 12,266% and saw its value increase by $111 billion.

The list is endless.

Back to Afre. The company recently undertook a successful $8.6m rights that was underwritten by cash rich NSSA. In an environment where liquidity crunch is the buzz word, the successful cash injection was an obvious boon for Afre Corp.

If financial markets are anything to go by…that is attest to investor confidence Afre Corp has been buyers only since December. Those who followed their rights can brag about a 22% capital gain.

Diamonds & Dogs is convinced that given the illiquid nature of the stock (NSSA holds more than 52% directly & indirectly), the only way is up.

Another dimension would be the corporate governance transformation. Besides Board Level changes there have also been notable changes at Afre Corp head office with seasoned insurer and Actuary (Actual if you may…) Douglas Hoto now at the helm and former Econet Wireless CFO Corporate Finance William Marere now FD among other executive changes.

It also seems that the old adage new brooms sweep clean may become true at the insurance holding company. If the turnaround witnessed at 1HY2012 where a balance was attained between shareholder and policyholder ching ching can be improved on with the FY2012 financials due in March 2013, then the only way for the share price is up.

Or maybe the market (read analysts and investors) is slowly coming to like the new Executive which notably has not been stingy with business information (unlike the predecessors). Availing sufficient info to analysts helps remove the perception that companies have something to hide and attest to the integrity and confidence of management.

Some of the flagship businesses for Afre Corp include First Mutual Medical Savings, Pearl Properties, First Mutual Life and FMRE Property & Casualty (Zimbabwe). Other companies in the group are TristarInsurance, FMRE Life & Health, FMRE Property & Casualty (Botswana) and African Actuarial Consultants.

As for now, all stockbrokers have buy orders on the counter while we all wait for the coming of FY2012 results!

Dog: MedTech (US0.03, WTD: -85%, YTD:  0.00%, Market Cap $346,900)

Diamonds & Dogs can only say the last time he checked, MedTech was now a retailer not only of drugs but exercise books.

Capitalised at $346,900 there is now doubt that the company’s car park is occupied by more valuable assets.

Taking the company private might not be a bad idea after all as the ZSE listing fees and Transfer Secretary fees may be more than the company’s profits.