Shares in London-listed South African IT group Dimension Data (Didata, DDT) plunged to eight year lows on Thursday after a trading update by the company’s Asian subsidiary Datacraft Asia. And, unless Didata makes a sound recovery, it is faced with falling off the JSE Securities Exchange South Africa’s (JSE) radar screen, taking the rest of the IT sector with it.
At 1026, Didata shares were trading at R2,15, down 13,64% or 34 cents from Wednesday’s close. This was its lowest level since March 31. 1995. The share was down over 20% in London.
This followed a trading update related to Didata’s Singapore-listed subsidiary, Datacraft Asia. Didata said Datacraft Asia would only break even in the six months to end March 2003 after contributing significantly to profits in the previous year.
In addition, Dimension Data’s US region is expected to post a loss for the first half of the financial year. The situation at Datacraft Asia was as a result of continuing economic and geopolitical uncertainties, together with intense competitive pressure in the infrastructure end of the market.
However, this is not the first time that Datacraft has proved an albatross around Didata’s neck. Last August, Didata shares came under pressure on news that Singapore’s white-collar crime unit — the commercial affairs department — was probing possible insider trading at Datacraft.
When it released its interim results in May, Didata said it had written off $15-million in bad debts, caused by irregularities in some import and export activities at companies in China controlled by its Datacraft.
Didata shares have been under pressure for the past couple of days after a profit warning by Datatec (DTC), which sparked fears that more warnings from companies in the sector were to come.
Didata is now down 17% this month and with its market cap currently standing at about 2.952 billion rand, it is only the about the 60th largest share on the JSE in terms of market capitalisation, making a fall out of the Top 40 index likely.
This means that Didata will no longer be a basket stock for the Alsi 40, nor will it be part of the exchange trade fund Satrix 40.
“I would say that Didata will probably fall out of the Top 40 index — it will probably go down to the mid cap index,” a dealer said.
He said that the trading update showed how difficult market conditions were and how little IT spend there was. He added that it made Didata extremely vulnerable as a takeover target.
“Didata will no longer have any weight as an investment. The worst thing that can happen is that IT will become virtually non-existent. I don’t think all the IT companies are as big as VenFin,” the dealer said.
While VenFin (VNF), which is best known for its stake in Vodacom, has a market capitalisation of R7,7-billion, the market cap of the entire IT index (J090) is just under R7,3-billion.
Putting it another way, the weight of the entire IT index in the all share index is currently 0,66%. Anglo American, the heaviest weighted stock on the bourse, has a weight of 15,69% — over 23 times that of the IT index. That means that were the entire IT index to disappear totally, it would have less effect on the bourse than a 6% move in Anglo. – I-Net Bridge