JJB, LMI – falling knives

JJB down 7.86% today. Scotsman reports it is finalising its restructuring plan. The firm warned last month that it will need fresh funds. I note that the company is net cash flow negative – with operating losses before exceptions of 56m. Why, just why, do the institutions keep bailing it out?  I’d think under most circumstances  this company would be dead by Christmas, but with such a charmed existence, it may get its bailout money. Can’t see how this is going to be good for existing holders under any scenario. Good money chasing after bad. I took a look at significant shareholders on Digital Look. Bill Gates (yes, THAT Bill Gates) has a direct holding. It’s only worth £500k now – most other major shareholders are around that level or less – suggesting that institutions have really dropped a packet on this one (like Mouchel).


LMI – Lonmin – Platinum Miner – interesting watching this one play out. 52w range: 622p – 1328p according to Google (although I’m sceptical about Google’s accuracy). Shares fell from 714p to 633.5p on 16-Aug-2012 on announcement that some of their striking miners had been shot dead. The next day, LMI issued an announcement that, on the balance of probabilities, the company would fail its covenant tests. Can’t quote sources, but I recall that an analyst suggested that £1b would be needed to shore up finances. Given current market cap of £1.3b, it looks like shareholders can look forward to heavy dilution. Thing is, LMI is on a PBV of 0.73. The average for the Platinum and precious metals sector is 0.45. I’m thinking that the market is not yet correctly pricing in the risk on this company. On an EV/Sales subsector comparative basis it is cheap (1.42 against the sector of 3.07). Carli  Cooke at Bloomberg reckons that it may be attractive to a potential acquirer. We shall see.

Edit: I think the rights issue was mooted at 1bn USD, not 1bn GBP. Makes a difference, of course, but it’ still not good.


About mcturra2000

Computer programmer living in Scotland.
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