This secret made these three men multi-millionaires
Over half a century ago, in New York City, three young men walk into a room.
90 minutes later, the door opens.
The men emerge, shake hands, head their separate ways…
And set about making stock market history.
The 'secret' acquired during those 90 minutes made these three men multi-millionaires.
Passed on behind closed doors, this secret is still used by many of the most successful investors on the planet.
Those in the know continue to exploit its power to accumulate life-changing sums of money.
How to profit from ‘spin-offs’!
Sometimes, when huge companies become too big, they ‘spin-off’ one of more of their larger businesses.
Basically, the company picks one of the businesses it owns – which doesn’t fit in with its strategy or plans, or that’s too big for it to incorporate into the rest of its business – and lists it as a separate entity on the stock market.
Often the by-product of the separate listing of that company is a significant increase in share price…
Just take a look at the examples below…
1. In 2011, Rand Merchant Bank (RMB) spun-off Rand Merchant Insurance (RMI). RMI listed at R13.99 and today it’s at R41.69 - up 198%.
2. In 2011, Mondi (MND) spun-off Mondi Packaging (MPact) in 2011. MPact listed at R13.50 and today it’s at R28.35 - 110%.
3. In 2004, Tiger Brands (TBS) spun-off Spar (SPP), which listed at R21. Since then, Spar shares have soared 885% to R207 today.
4. In 2002, PSG spun-off Capitec, which listed for just R2. Today, its shares have soared 44,400% to R890.
As you can see, spin-offs have the potential to generate MASSIVE returns.
Well, let me explain….
Three reasons why investing in spin-offs can make you a fortune
#1: Most shareholders initially ignore spin-offs, which gives you a great buying opportunity
When a company spins-off one of its businesses, it may spur a negative reaction from its shareholders. Some shareholders may be wary as to why the company decided to list one of its business.
Some shareholders may question, What’s wrong with it”? Is it a bad business?”
So the shareholders usually hold on to the parent company’s shares but sell those of the spin-off. This sends the spin-off shares much lower. And this creates a great opportunity to buy into the company on the cheap.
A good example was when PSG unbundled Capitec in 2002. Capitec’s shares dropped 37% shortly after.
Since then the share has grown over 40,000%.
2) Spin-offs don’t carry the same risk as new listings
There’s a difference between a spin-off and an initial Public Offering (IPO) – known simply as a “new listing”.
An IPO is a company that’s completely new to the JSE.
A spin-off on the other hand has management that’s been exposed to the JSE through the parent company for years.
This has a couple of advantages. Firstly, management don’t need adjust to the reporting needs and other JSE listing requirements.
Secondly, a spin-off will have information available on the past performance and assets of the business – approved by the JSE.
Whilst, an IPO has much less information available about the company.
3) Management works harder
As soon as a company is spun-off, it’sin the public eye. Investors, analysts and shareholders have the opportunity to scrutinise it.
So, this usually encourages management to work harder to meet expectations, which is why they generally perform better.
My favourite spin-off opportunity could double your money in 18 months
You may have heard of JSE giant, Pioneer Foods?
Well, Pioneer owns brands like Bokomo, Ceres and Pepsi. But a few years ago, the company got big and inefficient, so it embarked on restructuring its businesses.
One major decision was to “spin-off” one of its businesses and list it on the JSE. It listed this business on the JSE on 6 October 2014.
Following this, its shares dropped. But since February 2016, its shares have nearly doubled!
And even though it’s doubled in price, you can still buy its shares at a 60% discount right now.
And believe me, now’s the ideal opportunity to buy into it.
On 14 March, this “spin-off” announced that it expects headline earning to soar 516% and earnings per share to soar at least 447%.
Following such an outstanding trading update, its share price jumped 23% in one day. And when the company releases its full results, I expect its shares to rise again. So don’t waste any time, get in now.
Always remember, knowledge brings you wealth,