Tough Times

I see that Phumelela's share price seems to have breached what appeared to be a resistance level of R15 and is now quoted at R13,50.

Perhaps the market has started to get wind of the impact that recent rand strength inevitably has on the operator's bottom line.

The signals are there for all to see :

The Sunmet attendance was down with an accompanying small decline in turnover
On the odd occasion that I have looked at pool sizes betting activity on racing seems flat or marginally lower
The CTS sale produced reduced numbers and was effectively 'rescued' by a handful of foreign buyers
Recent trends suggest that there is NIL market for yearlings with modest or unproven pedigrees so forthcoming sales which offer less than glamorous horses (on paper) might struggle
A lot of stakeholders are simply worn out by the constant negativity surrounding the sport and the action/inaction of our supposed leaders

Difficult times ahead which no amount of 'spin' will alleviate

.....I can help thinking that this industry mirrors that of our local political situation.....got the "alleged" corrupt leader out.... but our Ramaposa (Kantor) will hardly be able to reshuffle the cabinet(board) because they all locked in with shares...... :S

I went up to my local Saturday as I do from time to time for SuperRugby matches(and tests or big soccer games) - I was shocked to find I could sit almost anywhere as I arrived just before the Sharks Lions game - On past years all the locals were full at the start of the season especially when the local teams played each other - O think people in general are feeling the pinch big time

Should find support around R12.50 and hang around there for a while. Problem is no half decent institutional investor will touch this company due to increased focus on corporate governance. Ramaphosa is awful for this company too, not just the rand strength but a few big owners might not find business as easy under a Ramaphosa run ANC. Only one way this company goes unless something changes.

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Mac you know we go out a lot on the weekends. I can tell you that for the last year every single popular hangout in the Jhb area is collapsing at a severe rate. The first thing they did was put prices up, around Nov last year, like a beer went from average R29.00 to now R45.00, the musos get paid much less and they just have to accept it, if people come they have something to eat and a drink and go home where in the past they used to stay till the end. The money is drying up fast in this country. If you try compare it to any other "developing" or "emerging" country..well there is no comparison as regards disposable money. (and yes I have qualified that to say disposable income as being the comparison)

I don't think a lot of people fully understand just how 'inequality' plays out in this country right now.

On one side we have the tiny portion of the population who could be described as 'gainfully & (semi) permanently' employed. These people are typically taxpayers. 103,000 of them pay 90% of all of the income tax collected out of an 'official' population of 55 million. (This figure is probably easily 60 million once 'others' are included).

On the other side we have the 'disadvantaged'; clamouring (quite rightly) for basic services, often jobless but contributing generously to population growth.

In recent years I have seen my disposable income dry up; encouraging me to dramatically reduce my recreational expenditure. As have, I would surmise, most others. In racing this has resulted in the disappearance of many punters and the almost complete decimation of the so-called 'middle market' owners.

A couple of weeks ago I had occasion to call in a service provider to attend to a malfunctioning speaker. Like me he operates a micro business. We were discussing business conditions and I noted that he seemed somewhat perplexed as to why his customer base had shrunk and was continuing to do so.

By way of an illustration I did an exercise for him to highlight the effect to which relentless taxation was strangling economic activity. It goes something like this and must be seen solely in the context of my circumstances and the service which he provided to me :

Service delivered : A small repair job costing R599 inclusive of VAT.

This is what I had to generate to get my speaker fixed (as it isn’t a tax deductible expense for me and comes off the top of my income).

Earnings R1090
Less tax @ 45% R 491
Nett R 599

So this job didn’t cost me R599 but rather R1,090. If I didn’t earn a biggish income I wouldn’t even have the speakers or would not be able to afford to repair them.

Now let’s look simplistically at what the state earned directly :

Firstly - VAT is charged on every R1 that I gross so they earned R152 on the R1090 that I generated & used to pay for the repair. My clients carried this cost but it was I that earned it for the state.

Secondly – VAT on the account was R99

In total the state earned VAT + Income Tax + VAT ( R152 + R491 + R99 = R 742 ). It gets significantly bigger when/if parts are involved.

Yet nobody believes me when I tell them that I am a servant of the state with no benefits.

.....and tomorrow the state will be back for more.

Garrick we are all servants of the state my question to you only because you understand markets is simply if the shares are being dumped by corporates who by default now own the shares would buyers pay top dollar R 15 or R16 or wait as see and let the markets determine fair price to help the buyers in their buying averaging.

Len - I think there are a number of factors at play here.

Firstly - Phumelela appears to me to be not dissimilar to the the state and the quite dramatic changes that are now gaining traction since the departure of Zuma. ( Substitute Jooste for Zuma in the case of the operator ). In both cases the organisations became effectively the 'plaything' of one man who through patronage, bullying or intimidation effected almost complete control.

Secondly - Key appointments were typically allocated to compliant (and often under qualified) individuals who were understandably never going to confront their patron.

Thirdly - as stated elsewhere in this thread by another poster- this share is very tightly held by a small number of key individuals with not a lot of institutional interest.

Fourthly - the company has traditionally paid a fairly generous dividend; allowing key executives to draw substantial additional perks in addition to their basic remuneration packages. (There was, however, nothing to stop Joe Average also buying the share and participating in this largesse).

Nevertheless - any half educated observer with an interest in the share would have noted the following :

1.) The company is regularly engaged in litigation WITH ITS OWN CUSTOMERS over any number of issues. Their track record in this sphere has been remarkable for its lack of success & the number of judgements that have gone against it.
2.) The general 'feeling' in the market (whether correct or not) is that 'racing is in trouble'. As markets are often driven more by emotion than fact this does not encourage any arms length investor to hold the counter.
3.) The company is remarkably opaque in some of its actions and dealings. Divisions which fall under its effective control (whether through funding or by appointment of personnel) have an almost uninterrupted history of not abiding and/or enforcing its own rules. Or simply changing them to suit whatever agenda it is pursuing. This can lead to lack of confidence in much the same manner as the way in which the former president dealt with the establishment of a commission to investigate state capture.
4.) The manner in which the company was established is mired in controversy (refer to much of the material written by Ian Jayes & others)
5.) I have seen few businesses which pay so little really meaningful attention to nurturing its customers & stakeholders; with the result that migration out of the sport is almost without parallel.It will be near impossible to lure them back in this generation. If ever.

In summary - there are probably many more appealing ways in which a prospective investor might invest their funds at present.

On a personal note I feel that corportization of the industry has not been the ideal solution for racing:

On one side it has been quite successful with its international arm although I am not convinced that any of these dealings have directly benefitted local racing to any great degree. But on the other hand we have lost almost all of the passion which used to drive the clubs; which were largely managed by individuals who, in exchange for a personalised parking bay & a free lunch on race days, put an enormous amount of 'love' into the sport.

Looking back it might have been better for the sport/industry had there been more co-operation between the regional clubs rather than the almost aggressive competition that was often the case. (Examples : It took an awfully long time to establish a 'national' tote and consensus on the various 'seasons' that characterise programming etc.)

It's a really tricky business to run successfully!

Thank you Garrick appreciate the effort and thought gone into your post..

Thanks Garrick. Excellent post, helps us who are less informed regarding this situation.

Garrick I'm with you 100% on that one.. personally I think the days of horse racing here as in other countries is a vastly declining sport and here it's just a matter of when the pools start decreasing properly to force the industry to make changes.. I have no doubt whatsoever