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Ideas & Debate

Atlas Development goes down as a poster boy of rotten stock

Then Atlas Development and Support Services chief executive Carl Espery during the gong ringing to mark beginning of trading of Atlas shares at the Nairobi Securities Exchange on December 17, 2014. FILE PHOTO | NMG 

The envelope please. My “rotten stock” award is going to be given annually starting now, to regressive companies (and their management), which have destroyed shareholder value at least in the past 12 months.

More specifically, their stock has lost more than 50 percent. Such behaviour deserves an award (even if it can’t be placed on the company trophy desk) because it “lights the way” for other firms not to do something similar.

Rotten, as you may know, is suffering from decay. This is why it’s the right inspiration for this award. And this year’s winner is: Atlas Development and Support Services (ADSS). Delisted on the April 25, 2019 this award is, therefore, given posthumously. ADSS beat strong nominees, which included KQ, NBV, NBK and Deacons for this inaugural annual “celebration.”

Registered in Guernsey UK in 2002 ADSS, which was admitted to trade at the Alternative Investment Market (AIM) of the London Stock Exchange (LSE), was cross-listed at the Nairobi bourse in December, 2014.

Three years later, the company was suspended from trading at the Nairobi Securities Exchange (NSE) following resignation of its Kenyan nominated advisor.

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Its woes had followed on from its delisting at the LSE in May 2017 after the resignation of the nominated advisor. There would be another regret as well. The logistics firm never made public its financial statements since 2015. There were no updates by the company to the 1,053 shareholders who owned the stock.

A review of the firm’s history and regulatory filings raised red flags concerning its strategy. The company was in the logistics business but it was still an unfocussed entity – it also dabbled in medical support services, risk and civil engineering services.

In 2015, the management then made a bold move of abandoning everything and shifted its attention to Ethiopia. Needless to say, the plan was short-sighted and ill-advised. The company soon “ran out of oxygen” after discovering it couldn’t raise Sh241 million required by the Ethiopian authorities to make its business work.

A shortage of oxygen is a problem “if you’re in the glass making” business. In the end, the pivot did more harm than good. What’s left of the company, will now remain as cold reminder of an investment gone terribly wrong.

As far as investors are concerned, it’s the end of a journey. ADSS proved to be a deplorable allocator of capital. Its short-sightedness brought its five-year run to an unfortunate end. If investors want to try to get their money back, they may have to consider tracking legal action.

Too bad investors in this stock will have to find that out the hard way. Worse that there is no value left after its shares were delisted.

On the sunny side though, there are plenty of lessons to take home; always do your due diligence when investing, consider strategy as a critical underlying fundamental and always stay diversified.

Though ADSS may go down as the poster child of “rotten” stocks, it should serve as a cautionary tale for investors moving forward. Sad, it had to be at the expense of shareholders.

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