A bright new dawn

Finweek English Edition - - Companies & markets - MICHAEL COUL­SON

DIS­TRI­BU­TION AND WARE­HOUS­ING NET­WORK – or Dawn – may look like a lost op­por­tu­nity. As re­cently as 2002 you could have picked up plenty of shares at 30c to 40c, less than one-for­ti­eth of the cur­rent 1 600c/share. But is it?

Up un­til 2003, though Dawn earned mod­est prof­its, apart from a spurt in 1998 there was no over­all growth and no div­i­dends, ex­cept for 3,5c in 2001. No won­der the mar­ket didn’t take to the share.

Dawn makes and dis­trib­utes plumb­ing and hard­ware items for the build­ing and con­struc­tion in­dus­tries, as well as re­lated prod­ucts for the petro­chem­i­cal, agri­cul­tural, min­ing and in­fra­struc­ture sec­tors in south­ern Africa.

But in 2003 (its fi­nan­cial year-end is 30 June) a ma­jor up­trend kicked off. That year turnover was R933m, op­er­at­ing profit R49m and head­line earn­ings per share 18,7c. By fi­nan­cial year 2006 those re­turns had be­come R1,74bn, R203m and 75,1c re­spec­tively. Dis­tri­bu­tion by way of cap­i­tal re­pay­ments was re­sumed at 4c in 2004, ris­ing to 13c last year. Growth was both or­ganic and through ac­qui­si­tion.

And the six months to De­cem­ber 2006 brought fur­ther progress: turnover of R1,4bn was 70% up, op­er­at­ing profit of R161m up 66% (show­ing that mar­gins were well main­tained) and HEPS of 54,2c up 54%, held back by higher mi­nor­ity in­ter­ests and weighted is­sued eq­uity. For the rolling 12 months, HEPS were 94,2c.

It looks as if the Dawn for­mula took some time to be ap­plied ef­fec­tively but has forged ahead in re­cent years. Broadly, man­u­fac­tur­ing pro­vides just less than 30% of rev­enue and just un­der 40% of op­er­at­ing profit. But as CEO Derek Tod says in the 2006 an­nual re­port, the suc­cess of its strat­egy ul­ti­mately de­pends on its dis­tri­bu­tion model.

With growth prospects still ex­cel­lent in do­mes­tic mar­kets, Dawn also has in­ter­na­tional am­bi­tions. Tod be­lieves it can repli­cate its model in se­lected high growth mar­kets, with an ini­tial fo­cus on sub-Sa­ha­ran Africa and the In­dian Ocean is­lands.

The share fi­nally broke con­clu­sively above 900c in the sec­ond half of Au­gust 2006 and has since hand­ily out­per­formed the mar­ket, ad­vanc­ing barely checked to the cur­rent level. The price:earn­ings ra­tio is an above-mar­ket 17 and yield a bare 0,8%. The ques­tion must al­ways be how far a rat­ing like this is look­ing into the fu­ture – but it should be jus­ti­fied by the prospects for both the sec­tors Dawn op­er­ates in and the com­pany it­self.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.