Afdawn So finally we have some finality Im not sure how many of the readers who commented on my previous post have stayed the course but hopefully some have had the composure. In order to lend a level of credibility to what I'm about to say... Firstly: In my previous post on the 1st of October 2009 I commented regarding Allegro "which in an absolute worst case scenario could only affect earnings and NAV by a maximum of 30%." The day afterwards, on the 2nd of October, an sens announcement was released stating that earnings would be between 27% and 37% lower than reported in the company's audited financial statements for the year ended 28 February 2009. Although different variables were mentioned, the two numbers are relatively well correlated. As a result, the number stated was correct given all available information at the time. The restated financial statements unfortunately rendered this prediction null and void. Secondly: I stated that "Afdawn is in no way exposed to any of Allegro's creditors." The sens announcement today confirmed this. The Moneyweb "Afdawn calls in the cavalry" article will give you the simplified version. "Emslie says that the board has received a legal opinion that claims against Allegro have no recourse to Afdawn. No claim of this nature has been received by Afdawn, the company announced." In fact, The Moneyweb "Theft, fraud and reckless trading at CMM - curators report" describes how it is likely that investors will not only receive their money back, but even receive a little interest. "the curators are still confident that they "may" be able to return investors' capital plus a "fair" interest return of 15.1% for the period March 2005 to September 2009." Now back to the present. Having sorted out (to a large degree) problem 1, the Allegro issues (or at least priced in the worst case scenario), and having written off problem 2, a nice chunk of goodwill resulting in the complete collapse of the share price over the last few months, what are we left with? Problem 3: A major need for financing in order to overt a liquidity crisis Problem 4: The 4.9m shares that went walkabout Problem 5: surety for R10m in favour of the NHFC in respect of certain developments Problem 6: Getting the 5 mil or so in bonuses back from the original directorship Problem 7: The curators "going concern comment" Problems 1 and to 2 were obviously potential ship sinkers, and yet, the company has endured. So, to the lesser problems Problem 3: They say: "The group's major challenge during the next six months will be managing liquidity, and to this end the board has implemented an aggressive collection and recovery programme and limited staff reductions. In addition, the board has embarked on discussions on securing additional funding lines from financial institutions and/or capital from its shareholders to ensure the long-term viability of African Dawn," the company said." I can't really comment on this problem, as the variables here cannot be measured. The success of this venture (at least the funding lines aspect of it) depends on management's ability to source the funds. What I will say however is that if anyone can do it, the current "banker" board could. Problem 4: I have no idea whats happening here, but that goes for all of us. Worst case scenario is not a train smash. Let's wait and see Problem 5: "Nexus Personal Finance ("Nexus") is currently funded by the National Housing Finance Corporation ("NHFC"), and is the subject of a forensic investigation." "The board engaged with the NHFC regarding the repayment of this facility and the restructuring thereof." Problem 6: Hopefully they'll use it to settle some of that NHFC. Either way, problem 5 and 6 involve numbers that couldn't sink a wealthy individual, never mind a publically listed company. Not to say that they should be ignored either, but in the bigger scheme of things.... Problem 7 This is by far the most important problem announced today. As you can imagine my faith in auditor's opinions has recently been shaken but either way, emslie comments: "The board also wishes to draw attention to the Emphasis of Matter regarding the ongoing availability of funding in ensuring that the group remains a going concern. Details of the current action plan to address this issue are covered in the rest of this announcement." (which he then does) So what now? Looking at the latter problems, when measured against the original 2, most can see that while Afdawn is clearly still in trouble, this business, with a NAV Per Share of 55.58c (currently trading at 37c) is not going to close anytime soon. The business is battered, but not as badly as it's share price. The EPS loss was bad, but the HEPS loss wasn't that bad at all. For those of you who don't know the difference, find out, because in this case it is particularly important. The forensic investigation etc can go ahead and we'll learn the findings at some point in the future, probably by discrete articles published by the very same moneyweb reporters who were MISTAKEN about the Allegro exposure mentioned above. Either way, this board is extremely conservative, and any further announcements will likely be either positive (relative to previous announcements) or simply confirmations of previously stated information. so now: "The board does not expect any further significant impairment to the asset base of African Dawn for the next six months." Yesterdays trading statement regarding the EPS and HEPS resulted in no price movement, and today's 7.5% drop was as a result of three or four trades to the value of 20g's or so, then ending in a R68,820 trade 37c (I wouldn't mind shaking his hand, his timing was exceptional, far better than mine) Non-the-less, This business, while still a speculative buy, has clearly been shown to be looking forward. I'm quite confident that the directors will find the money (perhaps from Nedbank if you follow the conspiracy theorists). Perhaps from somewhere else. The worst is clearly behind us, so lets see how things go. One things for sure though. The share is undervalued, even from a purely NAV stand-point. Lets not forget that a large portion of this earnings loss (from the HEPS side) was simply a result of the economic crisis that was experienced over the period (by all listed companies) being reported on, and only a portion to do with the problems mentioned above. The hoo-ha about this company was wrong, or at the very least wrong about what they were attributing the danger too. Now that it's behind Afdawn, it's a turnaround waiting to happen, or at least I think so...