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Dick Smith Holdings Ltd shares removed from ASX 200: What that means for shareholders

Credit: hnnbz

The collapse of Dick Smith Holdings Ltd’s (ASX: DSH) share price over the last six months has seen the electronics retailer removed from the S&P/ASX All Australian 200 Index as part of the S&P Dow Jones Indices quarterly rebalance.

While fellow retail business Kathmandu Holdings Ltd (ASX: KMD) has also been removed from the group, the pair have been replaced by businesses such as Australian Pharmaceutical Industries Ltd (ASX: API) and APN Outdoor Group Ltd (ASX: APO). Shares of both companies have climbed strongly in recent months.

Dick Smith was sold by Woolworths Limited (ASX: WOW) to private equity firm Anchorage Capital in 2012 and then returned to the market in December 2013. The shares traded flat around $2 for roughly 18 months before plummeting as low as 20 cents just last week.

The retailer booked a $60 million writedown on inventory and said it was “unable to re-affirm the profit guidance previously provided”. It also said the trading outlook was “uncertain” in the lead-up to the all-important Christmas period.

The shares have since rebounded to 40 cents at the market’s close on Thursday.

Source: ASX website - Dick Smith share 1-year share price chart

Source: ASX website – Dick Smith share 1-year share price chart

Although removal from the ASX 200 group isn’t the end of the world, it likely means the retailer will likely receive less coverage from analysts while some funds may be forced to sell the shares as well. This is because many are restricted to owning companies within the ASX 200 cohort.

Despite their low price, Dick Smith’s shares still represent a risky investment prospect with some analysts suggesting the retailer mightn’t survive much longer.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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