Picture: ISTOCK
Picture: ISTOCK

Distribution and Warehousing Network (Dawn) will require a large capital injection in order to turn around its fortunes.

Vunani Securities analyst Anthony Clark said on Friday that Dawn would be best suited being bought by Bidvest to enhance its products and services. He said while Dawn may be able to survive and continue to trade for a couple of years, new management had struggled to turn it around and the company would struggle to get cash with which to grow.

Clark said Bidvest, which had considered buying Dawn before, would be able to inject cash into the group and that Dawn’s products would fit well into Bidvest’s consumer goods businesses.

Dawn, which distributes branded hardware, sanitary-ware, plumbing, kitchen, engineering and civil products throughout SA and parts of sub-Saharan Africa, has struggled in recent years as a result of the lack of new infrastructure projects and internal problems with its operating systems.

Dawn, which has been a major provider of building materials for state infrastructure projects, last week reported a 19.1% drop in revenue to R3.5bn for the full year to March. Dawn’s wholesale housing supplies business also struggled.

The group made a diluted loss per share of 74.51c. This was, however, an improvement on the 199.62c diluted loss per share it made during its 2017 financial year.

CEO Edwin Hewitt, who took over in April 2017, said the 2018 financial year was difficult and that Dawn was "plagued by a host of legacy issues".

"Our results, albeit considerably better than last year, are worse than anticipated and disappointing," he said.

The biggest highlight was that management brought net debt down from R367.4m to R25.7m. A rights offer raised R358m in cash and businesses that were sold contributed R373.5m in cash.

But Clark said the results were very disappointing.

"These results were not up to the guidance that the new management gave to analysts and investors on a major update and site visit in late 2017," he said.

The share price had halved and investor interest had waned during the financial year.

Unlike Dawn, Bidvest has not been held back by a lack of government spending.

Cratos Capital portfolio manager Ron Klipin said only 5% of Bidvest’s group exposure was to the state.

Attempts to contact Bidvest proved unsuccessful.

andersona@businesslive.co.za