Peter Permell's concern, expressed in a letter of the February 14 Business Guardian, is that allowing the resumption of trading in Angostura's shares "is exposing an unsophisticated investing public to the risk of purchasing a stock that is presently without value." I believe that most investors deal in shares based on their perceptions and analysis about a company's future prospects. Companies are dynamic not static entities. Accounting figures are inadequate tools to measure the real values of good products, sound management and other intangibles. This is one reason why companies, with these intrinsic qualities, trade at a premium to their book value.
Fortunately, there are many reasons for hope concerning Angostura Holdings Ltd's (AHL) future.
AHL earned 45 cents per share for the nine months ended September 2010. With the impetus of Christmas cheer, sales and profitability were likely to have been greatly improved in the last quarter of 2010. Thus, it is not unreasonable to anticipate AHL reporting a full-year's EPS of 70 cents or better. (Does this imply a share price of at least $7?) At the company's 2008 and 2009 AGM's, at least two significant developments emerged.
First, in 2010, Angostura's physical assets were re-evaluated; this exercise is expected to result in a significant surplus, which will go a long way in correcting the negative equity position. Further, negotiations with Clico should shortly result in an arrangement that would settle Clico's debt to Angostura ($167.4 million was provided for in AHL's 2008 accounts). This has two important implications for shareholders; first, it would help correct the negative equity position and two, it would allow AHL to report a significant one-off profit (probably, in 2011). Settlement of the debt from CL Financial is likely to take longer, but would also result in even larger positive benefits for AHL in the future; remember, $973.9 million was provided for in AHL's 2008 accounts.
The CL Financial debt of $973.9 million to Angostura comprises two main items, $331.1 million relates to a loan to buy Lascelles de Mercado and $642.8 million refers to the Belvedere purchase. Consequently, it is not unreasonable that CLF could settle a good part of its debt to AHL by simply transferring to AHL an appropriate number of shares in Lascelles. Eventually, therefore, the issue of "negative equity" would become little more than an academic debate. Along with a more dynamic approach to its product development, these improvements should result in a higher share price together with reasonable and consistent dividends for AHL shareholders in the months and years ahead. The current management of AHL, under very trying circumstances, has demonstrated its ability to generate strong profits and healthy cash flows for shareholders; more positive news should emerge when the company releases its annual and interim results in the weeks and months ahead.Investors, who recently sold their shares at depressed prices, would probably wring their hands in regret.
Felix A Pereira
Diego Martin