Courts' bad news aplenty

It is better to be more interested in the market’s reaction to new information than in the piece of news itself.

Successful traders buy into bad news and sell into good news.

by Linda Bradford Raschke

Background

1. Courts Mammoth’s controlling stake is on the selling block. This is because its parent, Courts plc is being wound up & the administrator [KPMG Corporate Finance (UK)] is seeking to sell off its 50.1%-stake in Courts Mammoth.

2. 15 bids were submitted at the end of the deadline on August 24, 2005.

3. According to the latest report by the administrator [for the month of May 2006], they are in the final process of clarifying the final bids for disposal of the remaining Asian businesses [probably including Courts Mammoth operation]. See item 3.1.4 of the report (on Page 5 of the report).

4. The timeline for the completion of the sales is the latter parts of Q4 2006. See item 3.3.1 of the report (also, on Page 5 of the report).

5. The successful bidder for the 50.1% block of shares in Courts Mammoth will have to buy out the minority shareholders. I have done a valuation of the share on a "non-going concern" basis & came up with a value of RM1.14 per share. For more details, go here.


Latest Development

1. Courts Mammoth has recently announced its results for QE30/6/06, which shows a net loss of RM12.0 mil on a reduced turnover of RM127.9 mil. For more details, go here.

2. For FYE31/3/06, Courts Mammoth recorded a turnover of RM635.46mil against RM609.25mil the previous year. Pre-tax profit declined to RM4.89mil from RM45.28mil recorded previously.

3. On October 2, 2006 [4 days ago], the company held its AGM & the Star newspaper's headline was “Courts Mammoth working to cut bad debts”.

How did the market react to the new information?

The share price dropped 2 sen to 58 sen one day after the news of the bad debts problem. The subsequent 2 days see no further selling and in fact the price has recovered marginally. See the chart below.

















Chart: Courts' daily chart as at Oct 5

Should you buy into the bad news?

Note: Linda Bradford Raschke is a high successfully full-time trader. You can read some of her magazine articles (here). Her article entitled "Maintain Your Mindset, Using the Three R's of Positive Thinking" in the July 2004 issue of Stock Futures & Options is very instructive. If you just want to know about her Trading Rules, Tradergav has done an excellent job compiling them all here.