A dividend desert

Cash, cash everywhere — but not a drop to sink into accounts of Howden’s parched shareholders

The dividend impasse at cash-flush industrial services group Howden Africa has reached such levels of absurdity that shareholders may well start questioning their reality. Corporate hallucinations do happen when shareholders are dangerously dehydrated.

Howden last paid a dividend for its interim period to end June 2013. If it was straining in the prevailing economic conditions, it would be perfectly understandable for Howden to refrain from distributing cash.

But the business remains convincingly profitable, and its cash flows look as strong as ever. Since calling an unceremonious halt to dividends, the company has collectively generated about R12.50/share in earnings. That’s a substantial sum, equating to more than 40% of Howden’s share price. While the company’s ability to churn out quality profits through thick and thin is no longer open to question, the most conspicuous issue informing the dividend debate is Howden’s cash pile.

At the end of June Howden held net cash of R764m, equivalent to more than R11.50/share. Unless Howden is lining up a sizeable acquisition (and let’s concede the current industrial landscape probably hosts a good number of well-priced opportunities), the cash pile seems far in excess of working capital requirements and in terms of reinforcing the balance sheet.

I note that at Howden’s recent investor presentation, a shareholder asked if the company’s working capital requirements were still about R150m and what Howden intended to do with the rest of the cash. While the working capital requirements were confirmed at about R150m, the second part of the question was diplomatically batted off with “the board is actively investigating options to utilise the cash”. When Howden