Tuesday, September 7, 2010

Abterra - Before You Get Sucked In...

I saw some pretty positive write-ups on Abterra on Next Insight as well as The Edge. Seems like the Indonesian miner has built up good rapport with the media to the extent that one of them even said it may have a "Noble-esque future". One of the things I have learnt from Peter Lynch is to be careful of the "Next Something" and that comes awfully close.

Yes, Abterra is executing a 25-for-1 stock consolidation. Based on today's closing price, the ex-consolidation price would be $1.00. For the group, it will have about 200 million shares outstanding, from a 5 billion (thats a lot) previously.

Yes, the stock has a sexy story. It has mines here and there. But there is always something about companies that have Indonesian connections that I cannot quite put my finger to. Oh yes, Seroja Investments (formerly L&M).

The latter has also had a stock consolidation and touted an Indonesian growth story since coming out from Judicial Management. The last I checked, even after the its stock consolidation, Seroja has caused its shareholders some grief. It has sank to almost half the price its consolidated shares were trading when it just returned from suspension.

Question is, will Abterra cause its shareholders much hurt? In my opinion, it is very logical that Abterra embark on a charm offensive to get more people into it. But based on my limited experience, not so long after, you can be more or less certain of either share placements or rights issue. This will further dilute those who were already inside pre-consolidation.

Business model-wise, let us just say that many try but how many do become the next Noble? Just take a look at Novo Group. Yes it is in the meaner steel business where margins are really thin. But then, Novo already has units up and down the supply chain and that did not stop it from issuing a profit warnings.

Be careful when a company has too much positive press prior to something as rotten as a stock consolidation.

1 comment:

  1. Well said! I share your sentiments on Abterra, as well as on "the next somethings"!