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Cape Town - For a while unsung (and distinctly unsexy) cable maker Dynamic Cables was a market darling - thanks mainly to a short-lived plan to revamp the company as a gaming investment company.
Dynamic's gaming ambitions were unfortunately snuffed out by JSE regulations, and the only benefit of the much mooted casino can be found in the R5.7m earned as "other income" in Dynamic's year to end-December 2007 results.
The "other income" entry in Dynamic's income statement relates in part to the sale of the company's unlisted shares in Grand Parade Investments (a significant empowerment investment company in SunWest, the owner of the GrandWest casino).
Dynamic CEO Theodore Rai says Dynamic made a R3.4m profit of the sale of the GPI shares.
Fin24 presumes that Dynamic sold its GPI shares to holding company, Cape Empowerment Trust, which has been building a stake in the casino investment company over the last few years.
Without the casino angle, Dynamic looks a dour contender, and the market is offering a poor rating on prospects with the shares currently trading at less than a seven times earnings multiple.
Dynamic's shares have trickled down from 150c in mid-May to the current price of 79c on the JSE.
Looking at Dynamic's results, the group performed rather modestly if the profits from the GPI investment are stripped out.
On paper it would seem the group held its own as after tax profits came in at R9.3m or 11.0c (including the once off casino profits) compared with R9,8m last year. But operating profits (before the once of profits) were down markedly at R41m (last year R53m) with turnover crimping to R130m (last year: R160m).
Rai said the growth in expenditure of Dynamic's main customer base slowed down in 2007.
"Our biggest customers decreased their year-on-year capital expenditure resulting in a substantial drop in turnover for the company and we decided to exit from our shelving infrastructure business due to margin pressures."
But Rai said Dynamic's specialist cable division continued to exploit opportunities provided by infrastructure expansion with the group's copper connectivity products still sought after by telecom industry customers.
At this point Dynamic needs to add some spark to operations. And this may only be possible in parent company Cape Empowerment Trust can work some magic on the deal-making front - perhaps using Dynamic's BEE credentials to secure bolt-on acquisitions or seek an alliance with a larger entity.
It may also be better for Cape Empowerment to buy-back the cabling assets and in return inject (ie reverse list) one of its other assets (perhaps the fast growing property interests) into Dynamic.
Officially, Rai said Dynamic would focus on maximising value in the existing businesses. But he added that the company was currently in the process of identifying growth opportunities within the cabling sector.
- Fin24