Big­ger fish to fry?

Finweek English Edition - - Companies & markets - BELINDA AN­DER­SON

SMALL CAP ELEC­TRON­ICS com­pany Jasco has turned it­self around – apart from its still strug­gling se­cu­rity di­vi­sion. And as provider of the “last mile” in tele­coms it rep­re­sents a play on South Africa’s im­mi­nent broad­band revo­lu­tion.

But it re­mains small, with the prospects of merely tick­ing along, grow­ing or­gan­i­cally and through other small, tar­geted ac­qui­si­tions. That’s un­less it de­cides to do a deal with ex­ist­ing black eco­nomic em­pow­er­ment share­hold­ers Com­mu­nity In­vest­ment Hold­ings (CIH), Anna Mok­gokong and Joe Madun­gand­aba’s com­pany, for­merly known as Male­sela.

Last year, Jasco can­celled a cau­tion­ary an­nounce­ment that would have grown the com­pany from R350m in turnover to one with in­come of around R600m, in­creased crit­i­cal mass, en­hanced black con­trol and broad­ened its prod­ucts and cus­tomer base.

Though CEO Martin Lotz won’t con­firm

who the tar­get was, given that it was a re­lated party trans­ac­tion, it seems log­i­cal to as­sume that Jasco was try­ing to move closer to CIH.

So what went wrong? Jasco told share­hold­ers at its in­terim re­sults pre­sen­ta­tion last year that the value to re­ward ra­tio had been un­ac­cept­able and the trans­ac­tion had been can­celled af­ter spend­ing R1,4m on an ex­ten­sive due dili­gence ex­er­cise.

How­ever, it con­tin­ued to ac­tively pur­sue ac­qui­si­tions with sim­i­lar goals in mind as the pre­vi­ous trans­ac­tion would have achieved, Jasco said.

Lotz says Jasco has a strong re­la­tion­ship with Madun­gand­aba, its nonex­ec­u­tive deputy chair­man in charge of strate­gic in­put and mar­ket­ing op­por­tu­ni­ties, whom he de­scribes as a “shrewd” busi­ness­man with op­por­tu­ni­ties at his fin­ger­tips daily.

CIH owns a 35% stake in Jasco, with vot­ing rights over 51%. With the pos­si­ble con­ver­sion of the pref­er­ence shares its em­pow­er­ment own­er­ship will in­crease. CIH has var­i­ous in­vest­ments in lo­gis­tics, as well as power and en­ergy.

Mok­gokong and Madun­gand­aba are among a hand­ful of hard work­ing black pro­fes­sion­als who started their busi­ness long be­fore the em­pow­er­ment band­wagon and tend to keep a lower profile than most, de­spite pre­sid­ing over a cur­rent R4bn turnover com­pany. Mean­while, Jasco’s tele­coms di­vi­sion, which ac­counts for around 60% of the group, re­mains well placed. Its Webb In­dus­tries sub­sidiary does ev­ery­thing needed for wire­less base sta­tions, a still grow­ing mar­ket through­out Africa, while Te­le­sciences and Tassle­lane pro­vide last mile – the ac­cess net­work from the back­bone to peo­ple’s homes and of­fices – fixed line equip­ment, soft­ware and ser­vices.

The lat­ter should ben­e­fit as Telkom up­grades its net­work and in­creases its ADSL sub­scribers and also as sec­ond na­tional op­er­a­tor Neo­tel rolls out its net­work. How much they will ben­e­fit is up to Jasco to cap­ture its slice.

Though a fur­ther deal with CIH may not be im­mi­nent, it seems highly likely in the medium to long term. That pos­si­bil­ity, and the fact that it’s a broad­band ben­e­fi­ciary in a dereg­u­lat­ing mar­ket, makes Jasco a share to keep a watch­ful eye on.

Still on the

look-out. Martin Lotz

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