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Group Five shareholder intervenes

Allan Gray calls for change in board.

Allan Gray has called a shareholder meeting “in an attempt to change the board structure” of construction company Group Five, according to chief investment officer Andrew Lapping.

Group Five’s share price closed 1.44% higher at R18.36. Over the last 30 days it lost 13.56%, over the last six months 22.42% and over the last year 19.56%.

 

Group Five share price over the last year

 

No date has been announced yet and shareholders have been advised to trade in Group Five’s share with caution.

The announcement contains little detail and merely states that the meeting was called “following a disagreement with the board on the future direction of the company”.

Lapping however told Moneyweb that Allan Gray “became very concerned by the resignation of a number of key individuals over the last few months, both executive and non-executive”.

Allan Gray’s clients own 25% of the company.

The string of resignations started with former CEO Eric Vemer in February this year.

Group Five announced the sudden departure of Vemer on February 22 together with interim results that the company itself described as “materially below expectations”. Headline earnings per share dropped from 131c in the six months ended December 31 2015 to a loss of 302c per share in the six months ended December 31, 2016.

On March 1 the group announced the appointment of group executive committee member and head of developments Themba Mosai as interim CEO.

On March 27 the announcement came that human resources director Jesse Doorasamy had resigned.

A week later, on April 3, head of investment and concessions John Hillary resigned.

Four days later, on April 7, non-executive director and chair of the remuneration committee Mark Thompson followed.

On May 5 non-executive director and audit committee chair Babalwa Ngonyama resigned.

Lapping told Moneyweb that Allan Gray sees these resignations as a clear indication that something is amiss at Group Five.

“We met all the existing non-executives bar one in an attempt to fully understand what is going on.”

He says the board members were unable to give Allan Gray a clear understanding of the situation and regain the shareholder’s trust that they are acting in the best interests of Group Five.

“It is our opinion that it is in the interests of all Group Five stakeholders that the company makes a fresh start. The best way to achieve this is through a refreshed non-executive. A new non-executive board will be able to propel the company forward and ensure Group Five continues to play an important role in the future of South Africa.”

Chairperson Philisiwe Mthethwa, who is also the CEO of the National Empowerment Fund, is leading the board. She has been at the Group Five helm since 2007. Other non-executive directors are Kalaa Mpinga, Willem Louw, Justin Chinyanta and Vincent Rague.

About a week ago, Group Five also announced that PSG Asset Management sold all its shares in the company while clients of Coronation Asset Management increased their aggregate stake to 14.49%.

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There is a simple rule to determine holding on to a share – if i would not buy it today, what is it doing in my portfolio? On 23 May 2013 it traded @2350c and five years later, on 19 May 2017 it traded @ 1799c. Capital appreciation – zilch, capital destruction – lots.

Why is Allan Gray holding on to this share? It’s a mangy dog with fleas. Thank goodness I am no longer a client.

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