In­creas­ing strength to ex­pand into new ar­eas

Financial Mail - Investors Monthly - - Analysis - Mzwandile Jacks

Afro­Cen­tric In­vest­ment Corp shot the lights out in the six months to De­cem­ber fol­low­ing a sub­dued pe­riod when it was in­vest­ing heav­ily in ex­pand­ing its un­der­ly­ing busi­nesses. The most heart­en­ing as­pect of the in­terim per­for­mance was that the JSE-listed health-care hold­ing com­pany, which is black owned, is now start­ing to gen­er­ate rev­enues that will as­sist it in its am­bi­tions to grow in SA and the rest of Africa.

Afro­Cen­tric, which is a much over­looked mid-cap counter, owns, Med­scheme, whose cus­tomers in­clude the Govern­ment Em­ploy­ees Med­i­cal Scheme (Gems) and the Fed­health and Boni­tas schemes. The group is also on a tra­jec­tory to ac­quire new and ex­ist­ing health-care busi­nesses to in­crease its par­tic­i­pa­tion in the health-care sec­tor.

It is in dis­cus­sion with po­ten­tial part­ners in East and West Africa to ex­pand its foot­print in those re­gions.

But it is not ag­gres­sively tar­get­ing in­ter­na­tional ex­pan­sion at all costs, pre­fer­ring to re­main re­cep­tive to op­por­tu­ni­ties out­side the SA mar­ket.

The key ques­tion re­mains the con­di­tion of SA med­i­cal schemes and the op­por­tu­ni­ties this oft-ma­ligned sec­tor holds.

Ac­cord­ing to Afro­Cen­tric, ris­ing costs in SA have made

smaller med­i­cal schemes un­vi­able — es­pe­cially if they are fail­ing to at­tract younger mem­bers. This has made med­i­cal scheme merg­ers more likely, and Afro­Cen­tric is po­si­tioned to cap­i­talise on scheme con­sol­i­da­tion. Its tar­get for this year is an in­crease of 120,000 lives un­der ad­min­is­tra­tion.

Part of the new mem­ber­ship may arise from the re­la­tion­ship Afro­Cen­tric has with govern­ment via Gems and the po­lice ser­vice’s Polmed.

Afro­Cen­tric de­liv­ers chronic med­i­ca­tion to 180,000 pa­tients in Na­tional Health In­surance (NHI) pi­lot dis­tricts through its sub­sidiary, Phar­macy Di­rect.

It is ne­go­ti­at­ing with govern­ment around a num­ber of ten­ders, and con­sid­ers govern­ment to be a key client and part­ner to its busi­ness.

Ad­di­tion­ally, Afro­Cen­tric aims to ex­tract value from rev­enue di­ver­si­fi­ca­tion, ac­qui­si­tions and strate­gic trans­ac­tions.

It will pay more at­ten­tion to in­or­ganic growth, in­clud­ing pub­lic sec­tor in­volve­ment, in the next three to five years.

The fo­cus will in­creas­ingly be on niche mar­kets.

It is still early in Afro­cen­tric’s de­vel­op­ment phase. How­ever, the com­pany seems to be on the right track to achieve its strate­gic goals and — per­haps more im­por­tantly — has the bal­ance sheet to fund such strate­gic moves.

As at the end of De­cem­ber 2016, cash and cash equiv­a­lents stood at R373m. Ad­di­tion- ally, the com­pany has ex­pe­ri­enced good profit growth, man­ag­ing to post a 46% surge to R220m in pre-tax prof­its in the half-year to De­cem­ber 2016. Mar­ket watch­ers re­gard this as a good re­sult.

The num­bers are all the more ex­hil­a­rat­ing given that they in­clude the re­sults of as­sets be­long­ing to ven­ture cap­i­tal­ist Wad, which Afro­Cen­tric ac­quired in 2014 These as­sets were hitched to its wholly-owned sub­sidiary Act Health­care af­ter be­ing ac­quired in a R400m cash deal. The Wad trans­ac­tion has con­trib­uted more than 25% to the growth in the com­pany’s op­er­at­ing prof­its, says chief fi­nan­cial of­fi­cer Hannes Boon­za­aier.

Ar­guably, Afro­Cen­tric is show­ing all the signs of progress in a com­pany that has vowed to be­come a stal­wart.

Its po­si­tion as an in­te­grated busi­ness in the sec­tor of­fers op­por­tu­ni­ties to ex­pand into new ar­eas of health-care man­age­ment — in­clud­ing niches in the phar­macy sec­tor and ICT so­lu­tions for health.

The com­pany also holds a top mar­ket po­si­tion in man­aged care and has in­dus­try-lead­ing ex­per­tise. It has a long track record as a med­i­cal scheme ad­min­is­tra­tor.

For in­vestors who have an in­ter­est in BEE com­pa­nies and busi­nesses that in­crease rev­enue with ac­qui­si­tions, pre­scribes a large dose of Afro­Cen­tric scrip.

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