Hi John: Should I buy more Lime stock or D&G? I already own some Lime shares. What was the last dividend paid by D&G? Thanks for your advice.
Response | That is a tough question. By the way there is no such company as Lime. Unfortunately the stock exchange has, in their wisdom, bastardized the system by trying to suggest that Cable & Wireless has had a name change but that is not so. There is no legal limited liability company such as Lime listed on the exchange. Lime is purely a brand name and not the real company name. It seems to me that the exchange is totally confused. They have the name Lime for the company with the ordinary shares but they did not change the name of the preference shares which are still listed as Cable & Wireless. Drawing a line from what they have done, anyone not knowing the true situation would assume that there are two separate telecom companies listed, one called Lime and one called Cable & Wireless. Why JSE persists with this aberration is yet to be determined as there is no rationale for it, but then the stock exchange is doing many strange things these days. It makes one wonder if they are really serious about running a stock exchange at all.
D&G | Now to the question you asked. My investment company owns shares in both Cable & Wireless and D&G. First, the last dividend paid by D&G was 20 cents in December last year and another should be paid in June or July this year. They normally pay out 80% of profits each year so the next dividend could be around 40 cents since we project about 80-85 cents earnings per share for the current year to June.
D&G’s quarterly results are expected next week and they should have enough momentum to surprise the market and push the stock price up. I really like it as they have cut a lot of costs out of the operation with the switch of production of Red Stripe to the USA. The local market seems to be holding up well based on the last set of results released. We see further demand in the next fiscal year that should continue to move the stock price higher.
C&WJ | We still like and have great hopes for Cable & Wireless. If fact, we love turnaround companies because if we get it right and time the entry into the stock, we will make above average returns. They have been cutting costs and revenues should start rising from the new pricing strategy adopted for cell calls last year. These moves allowed them to pull in more than 250,000 new users. The revenue from those phones should be earned for the full 12 months this fiscal year instead of only part year as was the case for the 2013 fiscal. The calculations we’ve made indicate strong profits this year from increased revenues and reduced costs, the latter based on cost cutting as well as improved margins resulting from re-pricing when the interconnection rate were lowered last year.
Our main concern in the short term is the redundancy charge that we estimate to be around $3 billion that could cause the market to react negatively when the final 2013 numbers are released in a few weeks’ time. That doesn’t really bother us, as that reaction in our estimation, will be short-lived as investors start to see major improvement in the operating results starting in the June quarter. One may want to hedge one’s bet, by buying more now but leave room to pick up some at lower prices should the market react negatively to the impact of the redundancy cost that will depress the results but won’t repeat in the new year. Not only will it not repeat, there should be cost savings from the move that will help boost profits. Either way, it’s a bit of a gamble but the price is so low now and the upside potential so great in our estimation, that there is less risk in buying now than to await the results.
