Wednesday, 04 December 2013 10:37

Esorfranki shares plunge on ex-special dividend trading

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Shares in JSE-listed civil engineering and construction group Esorfranki close 34.71% lower at 79c.

Bernie KroneShares in JSE-listed civil engineering and construction group Esorfranki closed 34.71% lower at 79c on Monday‚ as the stock began trading ex-special dividend.
 
The special dividend to shareholders is the result of Esorfranki having recently sold its geotechnical division — the company’s core founding business and only division operating in the rest of Africa.
 
After the sale became effective‚ the board declared a special gross dividend of 38c per share from income reserves. The net amount after dividend withholding taxes is 32.3c per share. Having closed 42c lower at 79c‚ Esorfranki’s shares fell by more than the special dividend‚ implying a slight fall in the real‚ underlying stock price.
 
Momentum Wealth portfolio manager Wayne McCurrie said everything else being equal‚ “when a company goes ex-dividend‚ the share price should in theory fall by the cash value of the dividend”. However‚ he said share prices seldom fell by the exact amount of the dividend‚ given overall market movements and industry news. McCurrie said when looking at historical share price movements‚ investors could look at adjusted closing prices as these accounted for material dividend payouts.
 
A senior research analyst at Thebe Stockbroking‚ Keith McLachlan‚ said last week that Esorfranki’s disposal of its geotechnical business was “a defensive sale”‚ with Esorfranki conceding defeat to a major new entrant with a substantial balance sheet.
 
The R500m sale to global ground-engineering specialist Keller Group will also see Esorfranki revert to its original name‚ Esor. The change is likely to be made in December. Esorfranki’s management said last week the company was confident it would receive a further R150m from Keller for the geotechnical business. The extra payment depends on the businesses’s performance over the next three years.
 
McLachlan said last week it was a “stunning” division that was an early stage construction business. This meant it was the first to benefit when the construction cycle turned‚ he said. Esorfranki CEO Bernie Krone had probably picked the best of a bad set of options available to the company‚ McLachlan said.

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