Tuesday, October 27, 2009

GMG Global: All Spin No Action (yet?)

GMG Global, which i have 20 lots in, announced its 3Q09 results. it is in the favourite colour of Ris Low - red - for 9M09. this is unsurprising as the price of rubber has remained deflated compared to last year despite the slight rebound.

The stock price has been staying at 10-10.5 cents for the longest times. it is not that i think GMG is a lousy company. I think with sinochem as its substantial shareholder, there should not be any problem getting into markets in PRC or Africa, or for the matter the grander scheme of the PRC government resource grab.

what irks me is that the m&a has been touted as a buying point of the company to its literal death. if you do notice, companies that actually issue rights will say that it is for acquisition purposes only one time - the time when it issues the cash call. GMG on the other hand has reminded us again that it is still on the acquisition trail in its latest financial result.

I am not saying that such acquisitions won't happen. but by touting the fact that it might acquire some company twice in a row might show that it has a weak hand. Anecdotally, companies are usually hush when it comes to m&a. they tend to the let the share price do the talking and maybe let SGX query.

Either GMG's PR firm has run out of material to write for the press release or that the company is really negotiating to acquire a company, the smart money is that the cash call was meant to shore up balance sheet.

All the cash in GMG coffers comes mainly from the rights issue. for the same reason, i highly doubt that the company will announce any dividend for the coming full year. it will be a really long time for rubber prices to revert to last year high's. use oil prices as a guide in general. if you cannot stay with GMG for the long run, it is time to start looking elsewhere.

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