JSE-listed secure electronic payment company Prism has fallen victim to market speculation. The share lost over 40% of its value in intra day trade yesterday after a Tradek analyst report suggested the stock be viewed as a high-risk investment in the short-term.
This was further exacerbated by rumours in the market that the company was facing layoffs, cash flow problems and an inability to pay creditors.
Prism director Duncan Todd says operations remain healthy and notes that there is nothing unusual in a company following a high growth strategy being associated with high risk.
He explains that failed negotiations with a black empowerment company which was to have given Prism a capital injection has left the company a little tighter for cash. However, Todd adds that Prism has always enjoyed the support of its creditors and there is no danger of payment not being made.
Research published on the Tradek e-mail newsletter service, based on research conducted by Vantage Investment Solutions, draws investors` attention to Prism`s share price "significantly under-performing" other local IT stocks in October.
"On 29 October alone the share lost 13% while the sector was down 1%. Prism closed at a new low of 130c.
"Prism is a very high-risk investment. The group is facing a number of challenges that add significant risk to the company. These include diversifying its client base, managing a very fast growing company and raising capital to assist the group to grow in foreign markets," says the report.
A statement released yesterday by Prism CEO Alvin Els points to the company reducing operational costs and "examining several cash-raising options".
Els says the company is also examining the possibility of diluting its exposure in its offshore operations, Payshop and Telekom Technology Sdn Berhad.
The company says it will continue pursuing black empowerment investment and an agreement is anticipated by the end of the year.
Todd says rumour of layoffs had their basis in stated strategy issued by the group in its results announcement issued at the end of August.
Prism stated its intention to dilute its non-core interests in order to focus on operations only with direct bearing on electronic payment.
Business-to-business subsidiaries and Tinderbox are affected by the dilution, and Todd says Prism is in negotiations with third-parties and management as to possible management buy-outs.
Retrenchments at the companies will be a last resort option and Els says staff members at the companies were made aware of this fact on 26 October.
Although the analyst report voiced continued belief in Prism`s long-term performance, research pointed to uncertainty over the group`s high growth policy in an uncertain international market and cautioned against risk of "negative surprises".
Els ended his statement by saying it was ironic that speculation surrounding Prism`s future came at a time when the group had reported its strongest sales pipeline in its seven-year history and the group has every confidence in its short-, medium- and long-term future.
The Prism share took a severe knock in trade yesterday, dropping 43% to 70c on intra day trade, although it bounced back in early trade today, swapping hands at 109c.
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