Hornby, BHP Billiton, Pan African, and Share Radio

A few items of miscellaneous news worthy of comment:

  1. Investor Alexander Anton has launched a campaign to have Chairman Roger Canham removed from the board of Hornby (HRN) and get himself appointed as director. A requisition for a General Meeting of the company has been submitted accordingly. Hornby, the maker of train sets and toys, has had a poor financial performance in recent years with production difficulties, consistent losses, and a turnaround plan that is not obviously working. Mr Anton was involved in the revolution at Victoria a few years ago, with a very positive result, so he has experience of boardroom coups. He complains that Mr Canham’s position as Chairman of Hornby is inappropriate when he is also Chairman of Phoenix Asset Managment, who are the largest investor in Hornby. More will follow on this story.
  2. Another activist investor which ShareSoc has been involved with in the past is Elliott Advisors. They are attacking a much bigger fish than Hornby in that they have suggested that BHP Billiton (BHP) should be broken up. They wish to simplify the company, such as dropping the dual UK/Austalian company set-up, and suggest disposing of certain assets such as its US oil business and concentrating on its Australian mining activities. The company did spin off some of its metals businesses as South32 in 2015. Elliott has a 4% stake in BHP at present. This may be a long-running saga if the past tactics of Elliott are repeated, so we will no doubt hear more on that also.
  3. South African gold mining company Pan African Resources (PAF) announced a placing today (12/4/2017) to raise cash for the development of a new “tailings” project. The placing was at 14p when the previous day’s close was at 16p, i.e. a 12% discount. The share price trend also suggests that news about a possible placing had leaked out some days before, as happens very often. This is a placing, not a rights issue, with no accompanying “open offer” so minority shareholders are diluted and prejudiced in favour of institutions. The brokers involved were Numis, Hannam and Peel Hunt. ShareSoc has made lots of negative comments in the past about such placings in AIM company shares which we think should be reformed. It is particularly annoying when one personally holds the shares as I do in this case. I shall be complaining to the company Chairman.
  4. Financial news radio station Share Radio is apparently to close. Gavin Oldham, who set it up in 2014 and personally funded it, has apparently decided it is not financially viable according to a press report. It is disappointing to learn that a service that some people found useful is to disappear although I cannot say I used it much myself. Audio is a slow way of communicating information in comparison with the printed form which I suggest is one of the difficulties of the concept. Plus actually establishing a new business always requires enormous investment in building a customer base (an audience in this case). Well at least it’s not listed on AIM where unproven business models still abound.

Roger Lawson

Share issues – And An Interesting Rule

Spring is in the air, and companies are clearly in a mood to raise cash. A lot of these have been share placings but the reasons given have been varied. Placings rather than rights issues are always prejudicial to private shareholders as they are generally unable to participate, unless an “open offer” is included.

The share placing at IDOX (IDOX) was covered in the January issue of the ShareSoc Informer Newsletter and there is now a report on the AGM of that company on the Members Network where shareholders raised the issue again.

Cello Group (CLL) undertook a placing to fund the acquisition of Defined Healthcare – they raised £15 million to do so, but the placing share price was at a small premium to the previous market price. although the price moved up significantly after the placing was announced.

Learning Technology Group (LTG) did a placing to finance the acquisition of NetDimensions.

TrakM8 (TRAK) raised £1.66 million through a placing at 65p so as to reduce the company’s bank debt and strengthen its balance sheet. This was at a significant discount of 17% to the previous market price. The directors of the company took up a large number of the shares on offer.

One company that is doing a full rights issue is property business Segro (SGRO) although they had done a placing recently. The new transaction is to raise £573 million to finance the acquisition of the balance of an interest in Airport Property Partnership they did not already hold. However, the rights issue is being done at a discount of 28.9% to the previous closing price. Although investors can sell the “rights”, if they don’t and otherwise do not take them up then they will be diluted. Investors in Royal Bank of Scotland will not have happy memories of their heavily discounted rights issue in 2008.

One interesting recent announcement was from South African gold mining company Pan African Resources (PAF). They have apparently been “book building” to finance the development of a new gold mine at Elikhulu. But the Johannesburg Stock Exchange (JSE), where PAF is dual listed, has a rule that a company cannot issue shares at a price that is in excess of a 10% discount to the 30 day volume weighted average price. But as the current share price is lower, they have decided not to undertake an equity issue at this time and will finance development in other ways for the time being.

Now would that not be a good rule to adopt in the UK? It might make shareholders a lot happier because there are grumblings about all the above.

Roger Lawson

Losses From Withholding Taxes on Dividends

An issue that has come to the notice of ShareSoc is the problem of the Withholding Tax introduced on dividends in South Africa. Even though Pan African Resources Plc (PAF) is registered in the UK, it is dual listed on AIM and the Johannesburg Exchange (JSE). Because of the way South Africa introduced the tax change, any shareholder is going to get 15% deducted before payment (or 10% for UK residents under a dual tax treaty).

To get the lower rate, you need to submit a “Tax Resident Beneficial Owner Declaration Form” to the company’s registrar (Capita). So far, so good, if your shares are held directly (i.e. you are on the register).

However, if your shares are held in a nominee account (i.e. in an ISA or SIPP), your broker would have to submit such a claim for you (and any other clients for which they are holding the company’s shares in a pooled nominee account).

Checking with a couple of brokers, AJ Bell Youinvest and the Share Centre, they are refusing to submit such claims on the basis that they never reclaim such taxes. That’s despite the fact that they do reclaim tax deducted on UK listed REIT dividends.

This seems somewhat unreasonable even if it would be some effort to ensure the 5% of dividends were not lost. At least investors should be warned of this. Pan African is not likely to be the only company affected by this.

This is of course, yet another example of the negative aspects of nominee accounts. The fact that you are not the registered owner of the shares if you hold them in an ISA or SIPP account, or indeed in most broker accounts, undermines your legal rights including your dividend rights!

Roger Lawson