Johannesburg Stock Exchange and Namibia Stock Exchange-listed Trustco Group Holdings has continued to divide opinion, locally and in South Africa,
on whether its business model is sustainable on a long-term basis.
Local analyst, Rowland Brown, one of Trustco’s local critics, believes that Trustco “remains a house of cards”.
Brown, who believes Trustco’s performance is based on “endless hype”, said the company’s weakened performance for the six months ended 30 September was because property prices were not increasing, thus the company could not push through revaluations, as it usually does.
Editor-at-Large at businesslive.co.za, Marc Hasenfuss, wrote last month that he was worried that retail investors had been taken in by the hype without understanding the hollow nature of the business.
But Trustco founder, Quinton van Rooyen (Snr) poured water on the criticism, saying Trustco has outperformed Naspers, one of South Africa’s top-performing companies for seven years.
In the financial period ended 30 September 2017, Trustco profit after tax dropped massively to N$53 million from N$166 million in the same period in 2016 due to a weakened Namibian economy, which affected property prices, Trustco’s cash cow.
“The Namibian economy is experiencing a technical recession having registered negative growth of 1.7 percent respectively for Q1 and Q2 of 2017. This negatively impacted the liquidity of the market and financial service providers in Namibia. In light of the lower liquidity in Namibia, Trustco did not enter into any major property transactions in its property investments segment during the interim period. However, Trustco believes it remains ideally placed to help alleviate the pressures with regard to the demand for mixed use land development,” the company said in financial results released late in December last year.
But like a cat with nine lives, Trustco, announced in December that it has sold the 29th largest diamond ever discovered for US$16.5 million. The firm sets itself up to be the second-best performing counter in 2017 after selling a colossal diamond it had unearthed in Sierra Leone.
Trustco also said it had recovered 3,333 carats from the first 5,162 tonnes of kimberlite processed from its Meya River project. This included the giant 477-carat diamond.
This meant that Trustco was the JSE’s second-best performing share for 2017 with a gain of 111 percent, placing it behind Kumba Iron Ore, which has risen 120 percent.
But Hasenfuss said the calamitous collapse in the market capitalisation of a share as popular as Steinhoff International does inevitably sharpen investors’ senses in detecting warning signs of pending value erosion.
He said Trustco, like Steinhoff, a widely diversified counter, make for an intriguing scan.
“This is especially so because Trustco’s shares have defied gravity and more than doubled in price over the past 12 months.”
He wondered if Trustco was generating ‘real’ profits - cash profits.
“While Trustco’s operating companies have taken strain due to tougher economic conditions, it seems that previous profits were mostly ‘generated’ by large fair value gains in the company’s property portfolio. With the Namibian property market in a funk it would have been difficult for Trustco to record more fair value gains through the income statement on its key Elisenheim and Lafrenz real estate developments,” Hasenfuss said.