A bright new dawn
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.