Shares in Litha Healthcare have started the year on a fairly softer footing. However, pundits are unfazed by the losing streak, that’s trimmed the market cap to around R2bn. Market watchers don’t see Litha’s cautionary, in place since November, as a factor for the extended south-bound trek.
Thebe Securities equities analyst Keith McLachlan says the continued softness, which – on a three-month basis – has seen Life’s stock losing 15% in value can be partially linked to the fact that huge swings aren’t uncommon in small-cap shares. “Huge swings are typical of small-caps. Price ranges can be wide because of the small-caps’
generally low volumes. It’s a volumes game,” he says of this tightly-held and thinly traded play.
“Some swings are healthy events because they provide an opportunity for prospective buyers to get in.”
In afternoon trade, Litha was changing hands at 370c per share – barely changed from last night’s close. However, that’s markedly lower that the 450c mark the counter touched in October. Since then, market cap has lost no less than R400m, from R2.45bn. However, earnings multiple has somehow remained around 19, a figure pretty much in line with the rest of the healthcare sector.
“The fundamentals are still there, and we’re very comfortable with the stock at the current levels. Biotech and pharmaceutical segments, in which Litha plays, haven’t lost their blue sky potential and remain an exciting place for investors. That hasn’t changed,” McLachlan says.
At management level, the company has been fairly stable with the likes of CEO Selwyn Kahanovitz, Morena Makhoana, the deputy and head of Biovac Institute, and CFO Martin Kahanovitz boasting long service.
Andrew King, a veteran in healthcare, has been roped in as director responsible for the pharmaceutical unit.
SA Stockbrokers analyst Ron Klipin, who believes Litha has a strong team at the helm, is also of the view that the weakness in the stock is no reason for alarm. However, Klipin notes that there could have been a bit of profit-taking given the company’s strong performance in mid-2012.
Apart from profit-taking, Klipin suspects that the recent changes – including deconsolidation of the biotech asset and the transaction with Canadian-listed Paladin, now Litha’s anchor shareholder, with a 45% stake – have had a dampening but ephemeral effect on the stock.
“People are still trying to figure out what the changes mean and hence the reluctance, but it’s not a big deal, it will pass.”
For the interim period ended June 2012, during which the co-owned Biotech vaccines unit was deconsolidated, Litha delivered uninspiring results. On a like-for-like basis, turnover crept up 7% to R949m with gross profit scraping barely 3% to R205m but headline earnings per share went south. The company, in a closed period, is due to release its annual results in March.
Meanwhile, the healthcare firm, under the chairmanship of Nkululeko Sowazi, has announced that it’s in the process of consummating an empowerment deal with a “selected” black entity. While finer details are yet to be communicated to the market, Litha has announced that it has granted exclusivity, which expire on March 31, to the selected entity regarding the proposed BEE transaction.