A long, dry wait for DeClout's third act

TWO years ago, DeClout, a holding company for next-generation technology firms, looked like it was blazing a trail with two big exits on its investments. Brokerages churned out various non-rated reports on the company while punters eagerly awaited its next "harvest" - DeClout's term for its exits.

Today however, the company's most outstanding feature is that its shares trade at a measly S$0.07, 72 per cent lower than its initial public offering (IPO) price of S$0.25 in 2012. That is a lot of shareholder value wiped out.

In July 2016, DeClout made history when it became the first Catalist-listed company to spin off a subsidiary on the Singapore Exchange main board, raising S$34.6 million in net proceeds from the Procurri IPO.

In October of the same year, it sold its majority stake in another subsidiary, Acclivis, for a final payment of S$39.8 million.

Following such an exceptional 2016, it is likely that when DeClout releases its 2017 full-year results over the next few days, they will not look pretty in the absence of 2016's gains.

The nature of every business is different, and shareholders can stomach lumpy earnings streams if they are confident in the future prospects of a business.

In the case of DeClout however, its poor performance could also reflect the market's lack of confidence in the management and board.

For instance, following the divestment of Acclivis, DeClout dished out a S$7.2 million reward to shareholders. What was unusual was the nature of the reward - a buy-back of 23 million shares at S$0.315 Singapore cents apiece - a premium of 65.8 per cent to its share price of S$0.19 on Nov 21, 2016, before the buy-back was announced.

DeClout said that the share buy-back would "enhance shareholder value" by boosting the group's earnings per share. While this was mathematically true, it created no intrinsic value for the company - a fact that was not lost on investors.

By the time that the buy-back was carried out on Jan 9 last year, DeClout was paying a 77 per cent premium to the market price. Shareholders were also required to tender their shares on a pro-rata basis, putting retail investors who did not actively monitor their portfolios at a disadvantage.

Asked about the rationale behind this scheme, DeClout told The Business Times that it had evaluated the option of paying a dividend, but DeClout is a non-dividend paying company: "Depending on harvests, we might not have sufficient retained earnings to pay dividends on a sustainable basis. This scheme (also) provided the company with a means to accumulate shares from the market to keep as treasury shares for future funding."

Why it could not simply have bought more shares at a less inflated price is not clear.

DeClout made no new acquisitions over the last year, despite chief executive Vesmond Wong Kok Khun telling analysts and media last April that the group planned to make three to four new acquisitions in 2017.

DeClout's depressed share price has made things more difficult. In the past, it has relied on issuing new shares to buy new investments. To do so now would be to severely dilute shareholders. DeClout told BT that it may turn to the debt market or raise funds at a sub-group level for any acquisition opportunities.

DeClout's CEO Vesmond Wong also drew a bumper remuneration of at least S$3.25 million in 2016, mostly in bonuses during that milestone bygone year.

To be sure, DeClout's fortunes are largely pegged to Procurri, in which it retains a 47.3 per cent stake. Procurri, an enterprise hardware supplier, said earlier this year that it is eyeing a turnaround in 2018.

In August last year, DeClout announced a strategic business review of its portfolio companies. One of the stated objectives was to unlock value for its shareholders from Procurri and Beaqon, which sells telecommunications and network infrastructure solutions.

So far, what DeClout has carried out is a corporate restructuring of Corous360, its e-commerce business. It said that this would allow the management of Corous360's subsidiaries Epicsoft and PLAYe to take control of the business and reduce DeClout's exposure to losses.

How DeClout's full strategic review pans out remains to be seen. But it had better be far-reaching if DeClout intends to win back the confidence of investors before they suffer from oratory fatigue.