Cobus Loots, CEO of Pan African Resources, on delivering sector-leading returns for shareholders. Watch the video here.
“Hence it just doesn't add up ... considering national debts increasing vastly, and vast QE programmes, how can so much shareholder value have been lost ...something badly wrong seems to be in the functioning of financial markets ...either people were ludicrously overoptimistic/overconfident in the past .... or else their has been fraud and malpractice in a whole host of companies leading to often 90% losses to shareholders”
Contrary to popular opinion, QE and low interest rates are actually harmful to incumbent businesses, despite the short term benefits. Now, after 10 years of cheap money (low interest rates) we see the results. The reason why low interest rates are bad for old companies is the following: cheap financing allows new companies to enter the competition and take market share from incumbents as well as drive prices down. New companies who aim to take market share will keep going at a loss using cheap credit to stay afloat while eating the profits and the margins of incumbents. Older companies tend to pay dividends from their profits, as they think they are into a mature market, but the new entrants continue to invest because of cheap financing and eat up the profits of incumbents. Now, because of poor management, incumbents are usually loaded with debt, and they continue to take on debt in order to keep paying their dividends, thinking that the trading conditions will improve. The trading conditions continue to worsen while their debt load is bigger and the profits smaller. The moment management realizes it cannot afford to pay a dividend is usually too late and the company is already too deep into debt and unprofitable.
This is what happens in many industries, including with Debenhams. The auto industry that somebody else gave as an example is the same. In a high interest rate environment Tesla would have gone bust by now, but cheap money kept it afloat.
Also, we should not forget government policy, which is another reason why shareholder value has been destroyed across the board. Governments tend to introduce policies that costs business huge amounts of money. Think about emmission reduction quotas (auto industry), capped energy prices (utilities), subsidies for renewable energy at the expense of current power plants (utilities), huge busines rates and parking charges in city centers (retail), capped roaming prices (telecommunication), huge fines (banking), etc. Almost all big businesses have been hit with huge additional burdens by governemnts in the last 10 years. Add to that increases in minimum wages, labor costs and taxes. Government spending as a percentage of GDP is huge in Europe, so there is very little money left for the private sector. More companies fighting for a smaller chunk of the economy...
Hi! It is the first time I am posting on this board, but having lost a lot on this shares, I started to read the comments here in the last few months to stay up to date with the events.
I see that there are still people who belive the share price could recover, but I personally don’t think this is possible anymore, unless MA manages to take control away from the current board.
From the way events unfolded this year, it is obvious that the current board is protecting the interests of the lenders and bondholders with a complete disregard for the shareholders of the company. They comsiders shareholders as their enemies, just because MA is a shareholders and wants to boot them for obvious reasons.
At first, I thought MA was the bad guy trying to talk down the share price in order to buy it cheap, but now it looks like he was totally right about the board, and he just tried to defend his stake (and indirectly all shareholders) from the dillution prepared by the board and the lenders.
It should be illegal for the board to stage a coup with the lenders and steal away the company from the shareholders without their approval, but it seems that the law doesn’t protect shareholders at all, and the board can give the company away to the lenders and wipe the shareholders.
I really hope MA can do something to stop the “restructuring” and the debt for equity swap which will erase shareholders and give the company to the lenders/bondholders. He is the only one still fighting for the shareholders, since he is one of them. All the other players are just trying to steal the company.
I already lost hope about this one and consider my loss to be total, as I do not expect any recovery. I will hold my shares, as I already lost over 90% on this one, but I doubt ther will be anything left for shareholders after the board finalizes the coup.