JOHANNESBURG - After GijimaAST's (JSE:GIJ) announcement that its flagship, government tender has been cancelled, large shareholders have been silent. Will Stanlib and RMB, which were shown to own small chunks of the business in the IT firm's annual report, buy on the back of this turmoil?
Evan Walker, portfolio manager for the RMB Asset Management Small Cap Fund and Lance Krowitz, co-fund manager of the Small Cap Fund with Shawn Stockigt, gave their views on GijimaAst's announcement.
Krowitz speculated that this could be part of government's drive to cut extra spending in the wake of Pravin Gordhan's Budget Speech. He cautioned that it may be worth relooking at companies currently enjoying tender exposure, although he stressed he was purely speculating.
The issue appears to be contentious as management decided to contest the Department of Home Affairs' (DOHA) decision to terminate the tender, commented Krowitz. Walker agreed, noting that it is odd that government has chosen to terminate the project after it has been running for so long. He also commented that "the dispute looks quite aggressive".
One would've expected that there would be regular deliverables so any problems would have arisen earlier, reasoned Walker.
Krowitz commented that in a situation like this, management needs to balance business aspects and the legal perspective. "Do you want to burn bridges?" said Krowitz on Gijima's relationship with government.
Although Stanlib sold its 1.94% stake in Gijima, Krowitz believes that turmoil can create buying opportunities due to uncertainty, but his analyst's opinion is still pending. Walker Walker whose fund recently lightened its 3.6% shareholding said if he'd known what was going to happen he may have sold more.
He added that he wants clarity on the issues that caused the contract's termination so he remains cautious when it comes to a buy/sell call.
Walker noted that if Gijima loses the contract in question it's not the "be all and end all" of the company. He commented that the company has picked up other government contracts and has some pending, although that may not cover the potential gap (about 15% of its revenue or R450m).
However, one of the factors that comforts Krowitz is the extent of ownership in the company by management (36.99% as of 30 June 2009). He noted that this means that management's interests are more aligned with shareholders.
Source: http://www.moneyweb.co.za/mw/view/mw/en/page295027?oid=481153&sn=2009+Detail
