Marc Hasenfuss: Market Watch

first called time on its dividend payments, the official reason was that a new empowerment deal was pending. Clearly R750m is more than Howden would ever need to finance a leveraged BEE deal. So it was not exactly surprising to hear executives declare, at the investor presentation, that there was nothing new to add regarding the BEE deal at this time.

Let’s be frank: if Howden intended resuming dividends fairly soon, directors would surely signal this. For me, though, the key indicator is that interim cash generated from operations came in at R62m — an improvement of R8.2m over last year. Put another way, Howden generated a chunky 95c/share in cash flow.

Something has to give. The company simply cannot keep piling up the cash without unleashing meaningful acquisitions. I suspect two scenarios could unfold. The first involves Howden’s parent company, USbased Colfax, pitching an offer to buy out dispirited minority shareholders (who might well be relieved to see a cash offer tabled). Such an event may even be preceded by a share buyback, which does seem an optimum way to mobilise cash if the option of paying a dividend is to be avoided at all costs.

The second scenario (admittedly less probable at this delicate juncture) is that Howden pays a fat special dividend.

With the share at under R30, representing a forward earnings multiple of about 10 times, Howden looks like an intriguing value proposition for investors looking to score from either scenario. For long-suffering Howden shareholders, I can do little but offer my sincere sympathy for having to endure an unconscionable strategy.