ADCorp: A Disaster

A couple minutes after the closing bell on Friday last week, ADCorp (ADR) tried to sneak out an absolutely disastrous trading update. In this trainwreck on a trading update, ADCorp’s management obfuscated around the fact that their “Normalised” EPS is to collapse by -74% to -77% while their more robust (but not as loudly reported) IFRS-based HEPS will, in fact, be in a loss-making position of between -23cps to -33cps.

I have written a couple articles on ADCorp, so I am not going to rehash them. While the data is a bit historic in them, the points remain (very) relevant:

The overarching point in these two articles is that it is not ADCorp’s business model or even, perhaps, its strategy that is flawed. Rather, it is all probably because the management has grown fat in the middle of the Group at the expense of shareholders and investor returns.

Allan Gray are the largest shareholder in ADCorp with a 23.10% stake in the Group (as far as I can tell). This is the likely problem and, although different circumstances, quite a similar result to their Net1 investment (Allan Gray Defends Net1): When a large, passive investor becomes a listed company’s major shareholder and they are small in said investor’s life, then, so long as management are agile at justifying things, management can begin to run amok as the balance of shareholders do not have enough clout to rein them in and make them accountable.

Beware the listed companies who have the “passive passives” as their anchor shareholder…!

In Net1’s case this possibly resulted in dubious dealings and in ADCorp’s case it has likely resulted in empire building and management self-enrichment.

I am probably being harsh, as there are always other sides to these stories. I am also biased, as I invested into ADCorp’s largest competitor (CSG Holdings: Growth of an Industrial Services Group).

But, it does beg the question, how did ADCorp become such a disaster?

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