Dimension Data has had a tough time lately. Among other things, the share price on the JSE has lost almost 55% since the beginning of the year, and the group`s management has had to fight off some scathing reports and face a UK shareholder reducing its once sizeable stake.
Once the darling of the JSE, the group saw its share plummet last year in the wake of a "trading update" and subsequent shareholder reaction to its financial results. The share price has worsened this year, trading at levels not seen since 1996.
But while at least some of the share weakness may be justified, the fact that many shareholders have opted out at the slightest rumour or negative report indicates two things: first, Dimension Data is not doing a good job at communicating with its investors and, second, the IT market is still seen as a high-risk investment, with jittery investors taking their money at the first hint of trouble, however unsubstantiated. But the selling may have been overdone.
Dimension Data is not doing a good job at communicating with its investors.
Iain Scott, finance editor, ITWeb
There are several reasons the share price has continued to slide this year. First, there is the general IT sector weakness. The FTSE 350, a software and computer services index, has fallen by a similar margin since the beginning of the year. The local IT index has slipped about 37.5% and the Nasdaq Composite has fallen 14.7%. Dimension Data, as a high-profile IT company, is among the hardest hit when the market does decline. Weaker earnings from IT giant Intel have also had a significant impact on Dimension Data`s share price.
In May the influential Wall Street Journal published a scathing report on Dimension Data, which analysts said contributed to the continuing weakness of the stock. Although the group said later that the article`s writer had admitted that certain portions of the report were misleading, the rebuttal did not aid the share. Add to that the fact that UK investor Capital Group, which at one time held 12% of the group, has reduced its stake to about 7% - and some analysts say that 7% represents an overhang of shares.
The group was hit again this month when Global Credit Ratings downgraded its long- and short-term debt ratings. While Dimension Data expressed surprise at this, Global said the re-rating was justified by the risks associated with the group`s rapid expansion and the fact that it remained the largest Cisco customer outside the US.
The performance at Datacraft Asia also remains a key concern for investors.
The share price has continued its downward march, although nothing has changed at the company recently. Although the IT sector is still weak and investors are nervous, and although not everything smells sweet at Dimension Data, the selling may have been a little overdone.
Share