Financial small caps slammed

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					Financial small caps slammed
December 23, 2008

By Marc Ashton*

Johannesburg - Investors in small- to mid-cap financial sector stocks have had a year that they would
rather forget with many companies losing more than 60% of their market value. However, some
interesting counters including African Dawn, Blue Financial Services and Vunani catch the eye.

Companies that have seen their share prices more than halve over the year to December 19, 2008
include Purple Capital (down 86% after a rights issue), empowerment firm Vunani (-74%), Decillion
(-72%), Conduit Capital (-71%), Finbond (-68%), Cadiz Holdings (-62%), JSE Ltd (-57%), Brait (-54%)
and Iquad (-52%).

Other big losers included African Dawn Capital (-48%), Coronation Fund Managers (-42%) and
ERM (-39%).

The only small-cap financial share to not lose ground was Blue Financial Services, whose share price is
trading at the same level it was at the start of 2008.

Small caps remain something of a lottery as they lack many of the defensive qualities - such as diversified
earnings streams - that their larger peers enjoy.

However African Dawn, Blue and Vunani may look attractive. At a time when lending purses are tightly
closed, businesses such as African Dawn and Blue - with high growth, access to capital and a willingness
to lend - may prove interesting.

In September, African Dawn CEO Marius van Tonder told Fin24.com that he remained upbeat about the
prospects for the business despite a decline in the share price.

He was confident that the company earnings in 2009 would surpass those of the previous year and with
the company trading on an historic price-to-earnings (PE) multiple of three times earnings the company
would appear to be looking cheap.

African Dawn, which is currently listed on the Alternative Exchange (AltX), comprises two core revenue
streams: structured business finance and small-scale home improvement and personal finance loans.

Van Tonder also said the company was still considering a main board listing onto the JSE which should in
theory see the stock re-rate upwards as it comes onto the radar screens of fund managers who are
currently not mandated to invest in AltX companies.

Microlender Blue Financial Services has been the share that investors have loved to hate but with its
share price holding up well, it would have to be considered.
In recent months, the company has embarked on an expansion plan and has received over R800m in
funding from the National Housing Finance Corporation and the Overseas Private Investment Corporation
to pursue its lending operations to small business entrepreneurs.

The company reported a 167% increase for the six months to end-October, with management saying:
"The second half of the financial year usually produces stronger results."

However, Fin24.com readers have been sceptical about this micro finance operator who has ambitious
plans to list on three different exchanges over the next twelve months.

Illiquid Vunani has been the disappointment of 2008. A relatively new listing to the JSE the company had
been touted as an ideal vehicle for empowerment transactions in the financial services space. Despite the
optimism, the company has seen its share price halve from a 12-month high of 135c.

The company offers services like stock-broking, treasury and corporate finance solutions and has
holdings in businesses including Peregrine, Wesizwe Coal, JSE Ltd, BSI, Alert Steel, Buildworks, Esor,
Workforce, PSV, Interwaste, Redefine Income Fund, Brikor, Kaydav, TWP and Iliad. Falls in the prices of
many of these assets have driven the share down.

However, when Vunani reported its interim results in August, the company was trading at a net asset
value of 35c per share - the same level which it is trading now. With mergers and acquisitions likely to
increase at a time when assets would appear to be well priced, Vunani may be a logical beneficiary of
these transactions.

				
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