Adapt IT down on weaker growth

Shares in technology firm Adapt IT declined more than 5% in early afternoon trading after the company reported weaker organic growth for the half-year to December.

Shares in technology firm Adapt IT declined more than 5% in early afternoon trading after the company reported weaker organic growth for the half-year to December.

Although revenue rose 48% to R460.7m, it was mainly lifted by acquisitions while growth from existing businesses was 4% because of pressure in industries such as higher education and manufacturing.

Adapt IT provides software services to companies operating in the manufacturing, banking, energy and resources industries as well as to higher education institutions. In 2016 the company was unable to hike its prices after the decision by universities not to increase fees. But in 2017 many have announced fee increases of about 8% and this could see Adapt IT clawing back some of the losses. It had also increased its prices charged to the universities by 8%.

In the manufacturing sector, Adapt IT’s clients in the sugar industry were negatively affected by the drought experienced over the past year.

“It has been a tough market. A lot of customers deferred projects,” said CEO Sbu Shabalala.

Although organic growth was disappointing, the group managed to increase earnings before interest, tax, depreciation and amortisation (ebitda) from existing businesses by 21%, Shabalala said.

“It is pleasing that the more we are under pressure, we seem to be getting more profit from services we offer,” he said.

Overall ebitda, which includes acquisitions, rose 44% to R89.9m. Operating profit increased 32% to R69.5m.

Farai Mapfinya, chief investment officer at Falcon Crest Asset Managers, said the results were weaker than expected, reflecting a generally strained business environment. “The headline numbers were boosted by acquisitive growth over the period while on a like-for-like organic basis the company posted negative real growth.”

Shabalala said Adapt IT would continue to drive project work with existing clients and seek acquisitions after raising R84m in 2016.

The group generates 15% of sales from the rest of Africa while 12% is from global operations including Australasia.

Adapt IT was interested in companies with their own IP (intellectual property) assets outside SA and potential for further expansion, Shabalala said.