Casting around for an operational future
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.