IS LISTED financial services group Cadiz in play? I ask, because RE-CM, another financial services company, bought 15% of the beneficial ownership for clients in January and has since increased that stake to 22.5%.

It’s reasonable to assume the latest purchase was executed at about 150c a share. And it may also be significant that no Cadiz executives have bought Cadiz shares for more than a year.

So, why is RE-CM buying in the face of the considerable value destruction that has beset an outfit like Cadiz? What’s been going on, and why?

Established in the mid-1990s, Cadiz is listed in the investment services subsector of the JSE’s financial services board.

And its share price performance has reflected a generally poor market opinion of the company, with the counter tracking down from a one-year high of 277c to a low of 144c (currently 162c). Expressed another way, the stock lost nearly half its value before clawing back a little — it is now at 58% of its high in April.

A timeline of Cadiz’s history shows that the company bought African Harvest for R295m in October 2006. In the six years since then almost all the senior staff have departed: Heather Jackson and Rob Nagel to Atlantic; Pieter Marais and Mark Ansley to Citadel; Simon Peacock to Momentum. Even in an industry notable for its musical chairs, this is unusual.

The interim results for the six months ended September were trumpeted as showing diluted headline earnings per share 33% higher, a special dividend payment of 50c per share, and a claim that the benefits of restructuring were beginning to be felt. But I fear that’s not all.

When African Harvest joined the Cadiz group, assets under management totalled R48bn. Assets under management in September this year totalled just R34.8bn.

If it is assumed that the combined African Harvest and Cadiz funds would have performed in line with normal market performance, assets under management should now be about R80bn. This fall means one of two things, or an amalgam: first, funds may have been withdrawn and not replaced (confirmed by CE Fraser Shaw); second, performance has fallen far short of that achieved by the market on average.

The performance achieved on the firm’s management of equities stood in the bottom quartile of surveys. And the management of the bond portfolio was equally mediocre. Cadiz Asset Management has not paid bonuses for two years and the share incentive scheme for staff was not approved ahead of the financials being released. The group’s profit for the interim period was R1.6m, down savagely from the R14.6m reported in September last year, though Shaw says this is because a major stake in the securities operation was sold.

The group is facing lean times. Shaw says it is exiting the securities business and it will concentrate in future on asset management. He is in no doubt that the right corrective action has been taken, including cutting head office costs by 50%. And he accepts that the restructured team must now deliver.

If it does not, you can be sure the vultures will circle.


THE fascinating debate about where Judge Arthur Chaskalson’s political loyalty lay continues. More important, though, will be an assessment of what he and others designed for the country and its constitution.

Ken Owen thinks the product, perhaps unintended, is a system in which the government and Parliament are answerable to Luthuli House, not the people, that the party is now sovereign and we are on the way to a Soviet-style collapse.

Is he right? I think he is — though I pray he is not.


Season of tight belts and pinched citizens

FOR a country that has this cornucopia of natural resources, why is it that we consistently sell less than we buy? It makes no sense, especially given that we were supposed to enjoy the benefits of an extraordinary super commodity cycle of a nature and depth never seen before.

One reason certainly is that the African National Congress has badly battered the mining industry. Another is that we have never made proper use of our mineral resources by putting in place the skills pipeline that can turn raw metal into much-needed product. That’s what the South Koreans did, and look at what that nation has achieved.

Meanwhile, our problem shows no sign of easing up. The current account deficit has widened to an imposing 6.4% of gross domestic product (GDP) this year. Countries pay for imbalances like these either by dipping into their savings (we have none to speak of), or by persuading others to advance us the money we don’t have. The latter is what has happened in SA’s case.

At the same time, ordinary citizens are feeling the pinch. Their response, logical enough, is to do what politicians tell us to do all the time (which doesn’t apply to themselves) — they’ve tightened their belts. Retail spending has fallen dramatically. The anecdotal evidence is that this won’t be a happy festive season for the country’s retailers. The hard evidence is that retail spending in October increased by a solitary 1%, with a month-on-month decline of 1.7%.

Unsurprisingly, growth in money supply has slowed too. The percentage change for M3 (a broad aggregate of money in an economy) over 12 months has been 8.26% in July, 7.78% in August, 7.54% in September and 5.69% in October.

All these factors, including the wildcat strikes in the mining industry, impact naturally enough on the country’s growth prospects. This is getting closer to the time when we review the forecasts made by various noted economists for GDP growth this year.

I am not an economist, which does not at all deter me from making observations about the economy. It is really a matter of common sense, as the very best economists will confirm. In any event, I predicted growth of 2% for this year. Unlike others, I did not revise that forecast. We shall see.