IT companies with offshore interests have seen their share prices rise quickly recently as investors sought rand-hedge stocks, only to see them fall again this week on profit taking.
The share of Idion Technology Holdings, which has a major US investment in Vision Solutions, increased from 45c on 1 November to 73c at the beginning of December. However, it soared 91.8% to 140c by the end of last week.
By the close of trade yesterday, it had slipped to 108c on profit taking.
"It would make sense that people are taking profits after a share goes up almost 100%," an analyst says.
He says the Idion share`s rise was purely on the back of the rand`s fall, since investors were looking for shares in companies with offshore interests.
However, he adds that the share is still risky, since the group has cash flow problems.
He says Idion may have bitten off a little more than it could chew when it acquired Vision.
"If the market continued as it was then, then it would have been no problem, but when the market slows, orders aren`t coming in and cash isn`t coming in."
He adds that Idion should not be criticised too much. "A lot of people did it, and a lot made far worse mistakes. Prism did the same thing, expanded, and then the cash flow dried up.
"As they expand, these companies have to spend a lot on development and marketing, but in a bad market, turnover slows. They can`t cut spending on development and marketing because then they`ll lose market share, so it`s quite a tough situation."
Idion is only one of several IT stocks displaying the same pattern recently. Ixchange, whose only operating unit is US-based FrontRange Solutions, rose from 60c at the start of November to 149c on 27 November.
The Ixchange share price was back down at 102c at yesterday`s close.
The Datatec share price was still on the rise yesterday, but an analyst says this is partly driven by the group`s decision to bring its corporate governance in line with shareholders` expectations. The group recently announced board changes in the wake of shareholder condemnation around the payment of bonuses and insider trading settlements.
Datatec`s share price increased from 950c at the beginning of November to 2 110c yesterday. It was trading at 2 075c this morning.
Dimension Data, whose primary listing is offshore and which has operations worldwide, was trading at 885c at the start of November. Trading as high as 1 565c last Friday, it slipped to 1 505c yesterday and was down to 1 440c this morning.
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