Dimension Data`s place in the UK`s FTSE-250 index is safe as things stand. But analysts say that with the index being reconstituted on Wednesday, further share weakness could make that uncertain.
Telkom`s listing last week knocked Dimension Data`s share out of the Alsi-40, the index of the JSE`s top 40 companies, into the mid-cap index, with effect from today. This in turn has had the effect of demoting fellow IT company Datatec to the small-cap index.
Dimension Data has also lost its places in the Industrial 25 index as well as the Financial & Industrial 30. Adding to its woes is the news that it will retrench about 7% of its local workforce - about 250 people.
Indices are seen as important partly because tracker funds invest in the shares listed in them.
The purpose of a tracker fund, sometimes referred to as an index fund, is to emulate the performance of a specific stock market index, such as the JSE`s Alsi-40 index or London`s FTSE indices.
It does this by investing in all the shares making up the index, although some funds invest in a representative sample of the equities.
The fact that tracker funds are passively managed means no investment decisions are made. Shares are traded only when the index changes. Thus, when a share falls from an index, the tracker funds focusing on that index move their investment from that share to the new entrant.
Analysts say tracker funds do not have as much of an impact in SA as they do offshore, and although there will be an effect on the Dimension Data and Datatec shares, it is difficult to quantify.
More weakness
One analyst, Barnard Jacobs Mellet`s Craig Hackney, says part of Dimension Data`s share price weakness last week could probably be attributed to tracker funds shifting their investment, so most of the index-related dealing has already happened.
"There was a lot of noise around the profit warning as well, so unfortunately it`s not easy to say what had any particular effect." However, he agrees that tracker funds do not have much of an effect locally.
Coincidentally, a profit warning also preceded Dimension Data`s demotion to the FTSE-250 from the more prestigious FTSE-100 in late 2001, just nine months after its London listing.
Hackney says the FTSE-250 will be the one to watch, as the index`s quarterly reconstitution takes place on Wednesday.
"At the moment Dimension Data wouldn`t fall out of that index, but if there is more weakness to around 12.5p it could change. Tuesday`s London close will be an important one."
The share closed at 15p on the London Stock Exchange on Friday. In SA, it was trading at 191c this morning, down 3c or 1.6% from Friday`s close after trading as high as 199c earlier in the day.
Datatec was unchanged at 440c this morning.
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