Remgro’s pim­ple

Cast­ing around for an op­er­a­tional fu­ture

Finweek English Edition - - COMPANIES & MARKETS - MARC HASENFUSS

FOR MOST OF the past three months the share price of stripped-down en­gi­neer­ing group Dorbyl has idled along at around 295c be­fore show­ing a marked dip over the past few weeks to set­tle around the 250c mark. The re­cent dip is sig­nif­i­cant, be­cause it takes Dorbyl’s share price well away from its net as­set value of 315c/share – as stated at end-March 2011.

Dorbyl has dis­posed off all its re­main­ing op­er­a­tional en­ti­ties – save for Gue­stro Cast­ings – and cur­rently sits on cash of around R87m. That cash pile alone is worth 256c/share, the re­main­ing seg­ments of value sitting in a Benoni prop­erty (R36,8m) and its cast­ings busi­ness (R33m).

We suspect the re­verse in Dorbyl’s share price may well be a func­tion of share­hold­ers reg­is­ter­ing their dis­ap­point­ment that the com­pany never de­clared an­other spe­cial div­i­dend from its over­flow­ing cash pile. Late last year Dorbyl paid out 150c/ share as a spe­cial div­i­dend and it would seem it could af­ford to fork out an­other gen­er­ous pay­out to share­hold­ers.

But com­men­tary about Dorbyl’s re­cently re­leased year to end-March re­sults (which iron­i­cally came out af­ter the re­sults from con­trol­ling share­holder Remgro) might de­flate hopes for an­other sig­nif­i­cant pay­out. There now ap­pears to be re­newed hope for the re­main­ing op­er­a­tional en­tity – Gue­stro Cast­ings – de­spite the busi­ness notch­ing up an op­er­at­ing loss of R28m off turnover of R127m. How­ever, Finweek isn’t sure all share­hold­ers are go­ing to take too much com­fort from man­age­ment’s com­ments.

Direc­tors noted rather cau­tiously: “Al­though op­er­at­ing con­di­tions are ex­pected to re­main chal­leng­ing, Gue­stro Cast­ings is well po­si­tioned to gain from this slow re­cov­ery…”

It seems the im­me­di­ate ef­forts at Gue­stro – now headed by the highly rated Roland Rohrs – will be fo­cused on broad­en­ing and di­ver­si­fy­ing its cus­tomer base. But to be bru­tally frank it will take an ex­haus­tive broad­en­ing – cou­pled with some in­spired cost-cut­ting – to gen­er­ate mean­ing­ful re­turns from Gue­stro Cast­ings.

Surely at this del­i­cate junc­ture there sim­ply isn’t enough tan­gi­ble ev­i­dence for Dorbyl share­hold­ers to be­lieve the com­pany has an op­er­a­tional fu­ture built around Gue­stro? With­out a doubt there will be a worry that Gue­stro could eat into its cash pile, de­stroy­ing the bulk of the re­main­ing value in Dorbyl.

Finweek would imag­ine more than a few mi­nor­ity share­hold­ers in Dorbyl would pre­fer to have the cash paid out and per­haps see Gue­stro Cast­ings guided the way of a man­age­ment buy­out. In that re­gard, you have to won­der if Remgro – which owns more than 40% of Dorbyl – in­tends hang­ing around as the an­chor share­holder. A R120m/year busi­ness – even when mak­ing a profit – isn’t ex­actly go­ing to rip­ple through Remgro’s bot­tom line.

With­out putting too fine a point on it – and not­with­stand­ing Rohrs’ ex­per­tise in spe­cialised en­gi­neer­ing com­pa­nies – Remgro wouldn’t be get­ting full value for its man­age­ment time pan­der­ing af­ter a busi­ness such as Dorbyl. So maybe it’s in­cum­bent on Remgro to give some direc­tion to pro­ceed­ings: ei­ther by sell­ing its stake to a new (and more pas­sion­ate) strate­gic share­holder or wind­ing Dorbyl down as a listed en­tity.

A third – but prob­a­bly un­likely op­tion – is that Remgro should play a fa­cil­i­tat­ing role in bulk­ing up Dorbyl. In­deed, there are some smaller in­dus­trial en­ti­ties in Remgro – such as Wis­peco (where Rohrs built his for­mi­da­ble rep­u­ta­tion) and PGSI – that could be in­jected into the Dorbyl list­ing. But as in­di­cated ear­lier, Remgro has big­ger fish to fry (es­pe­cially on its bur­geon­ing tech­nol­ogy and me­dia side) and an or­derly exit from Dorbyl – with an­other spe­cial div­i­dend in hand – might well be the most pru­dent op­tion.

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