Things are going from bad to worse for embattled IT group Dimension Data as it is hanging on by the skin of its teeth to the JSE`s all share 40 index - the top 40 companies listed on the local bourse.
This week the JSE published changes for the third quarter to the make up of its benchmark indices and the news was not good for DiData. It fell out of the top 30 financial and industrial index (Findi 30) and it was ranked 45th out of the top 40 companies index (Alsi 40), which placed it in the "cusp" that the JSE uses as part of the make up.
According to JSE rules, the Alsi 40 consists of 40 shares, ranked by market capitalisation and the size of the free float (the number of shares that are traded on the open market). For a new company to qualify to be on the Alsi 40, it has to be higher than number 35. To drop off, it must fall below number 45.
The reason for this buffer zone is to allow the fund managers, especially those with tracker funds that follow the top 40 companies lists, to prepare themselves for a company eventually falling off the list. Otherwise, they stand to lose a lot of clients` money every time one of these quarterly reviews occur.
DiData`s market capitalisation has plunged from more than R90 billion in its heyday two years ago when it took up its dual listing in London and was placed on the London Stock Exchange`s FTSE 100 index. Nine months later it lost its slot on the index.
The group`s market capitalisation now stands at R3.7 billion. Today its share price plunged 21c to 286c - which one analyst says will mean it will fall out of the Alsi 40 at the next review in December.
"It is really tragic what has happened to the group. It has been beset by problems caused by the fallout in the IT market, but it also has its own internal problems that are causing it to perform even below the overall IT market," the analyst says.
He mentions issues such as the profit warning issued by DiData`s Far East subsidiary Datacraft Asia, following a number of bad debts and some controversy caused by its directors dealing in their own shares.
"All this points to controls not really being as tight as they should be and this will reflect on the group as a whole."
He says DiData`s share price means the group is probably vulnerable to either a takeover or some other kind of corporate action. "There are very mixed opinions in the financial services industry about its future and one will have to watch it very closely."
Share
