Not so Huge anymore
It’s been a baptism of fire for James Herbst. The newly appointed CEO of AltX-listed telecommunications company Huge Group has seen the share price lose nearly half its value since he was appointed in mid-November.
The share began plummeting six days after Herbst took the rei ns from Anton Potgieter, who is now executive chairman. Herbst, who styles himself as a financial engineer and deal maker, was previously finance director.
After the collapse in its share price, Huge Group’s market capitalisation fe ll from R300m on November 18 to R166m last Friday. Its trailing p:e — an indication of the value of the share in relation to its reported earnings — has fallen to 2, one of the lowest on the JSE. This is in spite of it handily beating its amended pre listing forecasts.
In the year to February 29 2008, the group delivered EPS of 44c, well ahead of the revised listing forecast of 34,7c and even ahead of the 43c it forecast for February 2009.
Herbst says there is nothing unsound about the business and the collapse in the share price is because two shareholders – he won’t name them – had to unwind their positions for cash.
“The share price collapsed from R3 to R1, or 67% of its value, because someone was trying to sell just 1,5% of the company,” Herbst says.
He says the fall in the share price puts Huge Group in a quandary. The acquisitive company, which listed a year ago to create a vehicle for doing deals, will find it more difficult to play the role of consolidator among telecom service providers.
Says Potgieter: “It’s a bit like having Zim dollars in your pocket. It’s not lekker.”
Herbst says delisting the company is now an option, though he emphasises that this is not being actively discussed. The group may turn to financial instruments other than paper to make acquisitions. “No-one in their right mind would issue paper at current levels.”
But what are the alternatives? “You need to create a way of looking at corporate finance,” Herbst says, without elaborating. “We are not clichéd in saying we don’t worry about the share price. We do. We want to grow by acquisition so it is an issue for us. It makes our lives as deal makers difficult.”
Because Huge Group is tightly held — 11 shareholders hold 96% of the equity — Herbst believes it is unlikely that anyone will launch a hostile bid to try to take over the company. But he says he is prepared to entertain offers. “At R10/share? Of course we’d be open to it,” he laughs. “Everything is for sale. But an offer of R2/share? Forget about it!”
Herbst doesn’t believe the downturn in the economy will have a significant impact on Huge’s growth prospects. He says the telecom sector is largely immune to the financial crisis. “If anything, people will use their phones more.”
Meanwhile, Potgieter’s recent appointment as executive chairman is likely to raise a few eyebrows. SA corporate governance guidelines recommend the appointment of a nonexecutive to chair the board, but Herbst says this model isn’t suited to smaller, AltX-listed companies.
“We’re going to try balance the power of the board in a different way, by having more nonexecutive directors,” he says. “Vox Telecom [a rival of Huge Group’s] showed it with the appointment of Tony van Marken [as executive chairman]. We think it’s the right model for an AltX company.”
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