Investors continue to hammer DiData

By Iain Scott for Dimension Data South Africa
Johannesburg, 04 Jul 2001

Dimension Data`s share weakened further in morning trade on the JSE today, slipping a further 16.89% to less than R19 on the back of what the market is taking as a profit warning.

The share lost 23% or R7 to close at R22.80 yesterday, as shares worth more than R564 million changed hands. An intraday low of R21.35 was reached.

Trade in Dimension Data shares accounted for about a quarter of the day`s volume on the JSE yesterday.

The share, which makes up about 75% of the IT index, dragged the index down 17%.

By 9.18am today, more than 1.2 million shares worth R24.64 million had changed hands, bringing the price down to R19.50.

By 11.21am, the share was at R18.95 after more than 9.2 million shares worth R181.6 million traded.

The group issued what it called a trading update yesterday morning, warning that increased pricing competition for its product-led business would put pressure on its full-year operating margins.

An analyst says while the group did not mention profit in the statement, the market saw the announcement as a cleverly worded profit warning. Rumours had been circulating in the market that a warning of some kind was imminent, he adds.

The share had already lost 7.7% in the week before the announcement.

Another analyst says while the share`s plunge may be overdone, the group has lost some credibility which may be difficult to regain. The myth that Dimension Data is immune to market conditions has been shattered, he adds.

One of the main concerns being voiced now is the possibility of the group losing its place in the FTSE 100. Dimension Data is currently 89^th in that index. Were that to happen, tracker funds would also sell their shares in the group.

However, several analysts agree that the market punishment has been overdone and expect the share to bounce back before the index is recalculated in September.

The Dimension Data plunge also pulled down other related stocks. Banking group Nedcor, which owns 8% of Dimension Data, saw its share lose 7%, while Old Mutual, which has a 53% stake in Nedcor, lost 2.15%.

Fellow IT company Datatec lost R1.75 or almost 8% to close at R20.15. It was trading 4.22% or 85c down at R19.30 late this morning.