Reunert's caution poses questions

Johannesburg, 08 Feb 2007

JSE-listed electronics and electrical engineering company Reunert has again urged investors to be realistic about its returns this year, sending its share price down slightly yesterday.

Despite some concerns over the electronic sector's well-being going forward, analysts do not see any reason for panic, pointing out the company is merely being cautious.

In a statement to shareholders yesterday, Reunert repeated statements it made at its year-end results in November. It noted shareholders should be realistic in their expectations of the firm's performance going forward, despite the current buoyant state of the equity market.

"Generally, the business climate is expected to be favourable and most of the group's businesses are likely to continue producing real growth in earnings. The consumer business may experience slower demand in a higher interest rate environment," it said.

However, the company still expects to report "real earnings growth" before having to account for its black economic empowerment deal, which shareholders have approved. Its most recent financial year to end-September saw revenue up 17%, to R8.2 billion, while operating profit grew 39%, to R1.3 billion, thanks to the "continued strong domestic economy".

Shares suffer

Reunert's statement weighed on its share price, causing it to lose 2.46% by mid-afternoon. Another similar stock, Jasco, was down 3.54% just after 2pm yesterday, while Altron was down 0.24%, after dropping 2.7% at one point.

An analyst - who does not want to be named - says Reunert's concerns were the result of the fact that management cannot control external factors, such as the rand:dollar exchange rate and the copper price. In addition, last year saw share prices in the sector moving up well, perhaps a bit too fast, he says.

"The market may have been carried away by foreign direct investment without paying too much attention to some of the risks." Despite this, he expects to see a small amount of profit-taking, with most investors happy to retain their shares.

Another analyst says he does not expect "excellent news to always continue", and the company is justified in being cautious. "In the ICT sector, things are going well and are healthy and spend is coming through."

Reunert's ICT subsidiaries include Nashua, Nashua Mobile and Siemens Telecommunications.