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Should you even consider investing in African Bank when it relists?

by , 02 July 2015

In March 2012 African Bank was worth R32 billion.

By March 2014 the share price tanked, and the company was worth only R8.8 billion.

By the time the company's shares were suspended on 11 August 2014 it was worth a mere R465 million.

The share price hit rock bottom at 31c, down from R42 share just a couple of years earlier.

Likewise, in May 2013 I warned investors Abil could go under. Then, in July 2014, I told investors the company's bankruptcy was imminent. Mere weeks later the company share price crashed from R7.65 to 31c.

Today I'd like to share the latest news about this company with you…

News of ABIL’s relisting have been greatly exaggerated

Toward the end of 2014 there were rumours Abil would relist in February 2015.

More recently I’ve seen some mention the company will relist in September 2015.

But I can promise you – there’s virtually no way Abil can achieve relisting within this year.

Tom Winterboer, a chartered accountant and the curator of Abil, confirmed this in a recent interview.

Winterboer said they initially wanted to relist ABIL once it had its new banking licence.

The ‘Banks Act Amendment Bill’ has since been signed by parliament and the curator now has the ability to take full control of the ‘good bank’ portion of Abil.

But the fact is, even with this happening a listing is still too early.

You see, the company is still making losses.

Earlier in June the company reported a R2.8 billion loss for the first six months of 2015.

That was topped by even worse news. Abil restated its R5.9 billion loss for 2014 to a R9.3 billion loss.

So, in the past 18 months, African Bank has lost R12.1 billion.

A company just can’t list on the JSE when it destroys shareholder value at this pace…

What African Bank needs before it can relist again

African Bank will first have to prove it can turn the situation around. Lowering losses from R9 billion to R2.8 billion isn’t a turnaround. That’s merely ‘less bad’.

At the moment the company is lending around R600 million a month. It needs to continue doing this consistently whilst making money from these loans.

Then it needs to increase lending to R700 million and eventually R1 billion a month.

Only when it reaches this level will the company be in a sustainable situation again.

By September the bank might make an offer to its creditors as to how it’ll pay back their money. This will most probably be in the form of a 10% haircut on debt and conversion of debt to equity.

But that still won’t realise a relisting of the company.

Even if this company manages to relist do you want to put your money into it?

Let’s say for arguments sake, Abil relists in a year or two’s time. Should you put cash into the company?

Just consider this: For 2014 Abil had to write off 80% of its debt.

So for every R1 borrowed, it wrote off 80c.

The company wasn’t just merely reckless. Clearly, its lending practices were borderline insane.

I doubt it will be able to reach previous lending levels whilst continuing a ‘responsible’ lending policy.

That means there’s just no way the company will be able to reach previous revenue levels.

If you owned Abil shares you can hold onto them when the company relists. They’re worthless anyway – you’ll only waste your own brokerage money by selling them.

But reinvesting in this company would be futile.

As I said, don’t get excited that it’ll relist any time soon.

And even when it does list, be very cautious…

For my money I prefer Capitec. I told investors so on 8 May 2013 when Capitec was R200 and Abil wasn’t bust yet.

At R480 today I still like Capitec for upside and wouldn’t touch Abil.

Capitec is growing its banking customers and will soon make more money from transactional banking than it does from lending.

That’s the space you want to be in. Not the unsecured lending space where a baseball bat to the knees is the only way of getting your money back again…

Here’s to unleashing real value

Francois Joubert

Editor, Red Hot Penny Shares

Should you even consider investing in African Bank when it relists?
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