Message to Murphy- I can be bothered...today

Amazing scenes Down Under where financials are taking a hammering. Particular attention has fixed upon Allco Financial Group (AFG) whose shares have tanked amid allegations of impropriety. There is anger on the street/beach, people are losing money and it must be some one’s fault.

Funny thing is, when the tide was in, the beers cold and the shrimp sizzled on the barbie no one cared – or at least no one in authority.

Sudden action on the topical deserves a special kind of sceptical scrutiny. So when the Australian Securities and Investments Commission (ASIC) and the Australian Stock Exchange (ASX) decide to get jiggy on behalf of vocal holders of losing equity some guffawing from observers ought to be expected. On this occasion ASIC justifies its existence by choosing to investigate purveyors of rumours designed, it is alleged, to aid their short sale targets. Apparently the ASIC and the ASX are serious in this endeavour.

There is self-interest in this cynical commentary: prior experience has taught this scribe that where the ASX is concerned a complainant ought to expect zero transparency or explanation no matter what level of accounting logic or other proof is offered to them. But, of course, that may be only an isolated experience in a sea of otherwise conscientious regulatory oversight.

The simple fact of life is that a routine and invariably cost-effective regulatory audit and/or inquiry will ultimately benefit both shareholder and corporate governance; whereas expensive insider dealing and share manipulation prosecutions are difficult convictions to make wherever the jurisdiction.

A little early scrutiny of the incestuously cross-collateralised Allco empire, now said to be a victim of the naughty, wicked story-tellers who believe the group was/is recklessly operated, might well have underlined this notion.

Still, the market is doing the regulators' job (again) albeit belatedly. Even a relatively untouched-by-the-topical outpost of AFG (itself part of a yet another Allco entity whose organisational motto appears to be 'never knowingly simple') such as Allco Equity Partners (AEP) has seen its equity fall from A$ 6 at floatation in December 2004 to A$ 2 now. Compared to that 67% drop the ASX All Ordinaries have risen more than 25% over the same period.

As a footnote, AEP’s largest holding in its curiously diversified three-investment portfolio is IBA Health, buyer of the UK’s iSoft plc last year. Which begs the question why a ‘private equity’ fund would commit by far the bulk of its resources to a quoted outfit that individual investors could buy just as easily themselves.

Luckily in these troubled times IBA are doing so well, according to their Chairman last month, that they won’t be needing access to the A$ 58m working capital facility AEP had offered at acquisition. Which is a fine piece of pure fortune if soon to be demised AFG wants its 20% interest in AEP bought out.

Either way AEP will be into IBA for the long term. Obviously (see Exhibit 1).

Exhibit 1: The AEP long-term perspetive in action - IBA Health performance since iSoft acquisition


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3 comments

  1. paul.murphy // 3/11/2008 07:06:00 PM

    Knew you just needed a prod.

    v interesting, btw

  2. Charles Butler // 3/11/2008 08:09:00 PM

    I dunno how you can dis an exchange that provides explanatory notes on its charts like - 'prices adjusted for issues'.

    I really don't know.

  3. RJH Adams // 3/11/2008 10:30:00 PM

    Hi Charles!

    shame they don't specify which issues they refer to...

    R

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