Ann: Change in substantial holding, page-36

I agree it’s all a bit disconcerting. The share price touching 60.5c as I write this!

I do think you can forget about insider selling as a reason for the share price slide. If any of the company's directors, managers, or employees are trading the shares now, they're likely breaching the rules of the company's blackout period (which runs from interim book closing until the interim results get published). Leaks to non-insider shareholders, alas, are a possibility, as they are for all companies, though proving them is another matter. (There's surely a PhD in the offing for anyone willing to investigate the means by and extent to which leaks occur in the listed space in Australia.)

Personally, I’m more inclined to believe the recent downtrend in the share price is simply the result of increasingly jumpy selling by market participants who are concerned about the earnings outlook in the face of cost pressures etc. Note that the consensus EBITDA and EBIT estimates for the FY23 and FY24 full years have drifted steadily downward in recent months as the 4-5 analysts covering the stock have turned more pessimistic.


Could it have all gone too far? Perhaps. The guys at Allan Gray would appear to think so.


Some possible outcomes (but I've been hopelessly wrong before so DYOR) -
# The bull case: The company, true to its recent commentary around how it handles inflationary pressures etc., announces interim results and full-yr. guidance that surpass consensus. Allan Gray’s aggressive buying is vindicated. The most bearish of the covering analysts have egg on their faces, but keep their jobs. The share price heads back to 80c, possibly $1.00.

# The base case: Interim results and full-yr. guidance are broadly in line with current estimates. The share price hovers around 65c until the next piece of news.

# The bear case: The company’s commentary about how it’s well positioned to handle inflationary pressures turns out to be overdone. Labour shortages and so forth are far more severe than anticipated. The share price, despite having already fallen ahead of the interim result to reflect such a scenario, falls some more. A fund manager at Allan Gray loses his/her job.

*One thing that might save the share price even if the results are somewhat short of consensus is cash flow. If the company can somehow reduce the $274mn accrued revenue component of its $378mn accounts receivable book, the cash would roll in, and they could pay down quite a bit of debt, and so significantly reduce their enterprise value, perhaps even pay a dividend!

On a final note, I would really like to see SSM, a serial 'infrequent discloser', update the market more frequently. They last issued a price-sensitive update back in October, some three and a half months ago, at the 2022 AGM. This, in my humble opinion, is not at all good enough. It's hard to think of any reason why they could not publish quarterly revenue and EBITDA updates.