An­nu­ity in­come the se­cret

Three-quar­ters is re­cur­ring, cush­ion­ing it from cur­rent eco­nomic slow­down

Finweek English Edition - - Companies & Markets - BELINDA AN­DER­SON

LIKE SOME OTHER SEC­TOR play­ers, Al­tron tele­coms’ IT and mul­ti­me­dia sub­sidiary Al­tech has man­aged to weather the eco­nomic slow­down with re­mark­able ease, re­port­ing good re­sults in the first six months of its new fi­nan­cial year to Au­gust. The se­cret, says CEO Craig Ven­ter, lies in its an­nu­ity in­come. Whereas a few years ago it gen­er­ated 42% of its in­come from re­cur­ring sources, a mas­sive 77% of this pe­riod’s rev­enue – R3,5bn out of R4,5bn – can be con­sid­ered an­nu­ity in­come.

In ad­di­tion, Al­tech has man­aged to di­ver­sify its rev­enue base from out­side South Africa. The amount of rev­enue from sources over­seas has more than dou­bled to R802m this half. And Ven­ter an­tic­i­pates R1,7bn in for­eign in­come for the full-year. Also key to

its suc­cess this pe­riod has been the con­tin­ued growth in op­er­at­ing mar­gins.

First-half earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­sa­tion ( EBITDA) mar­gins grew to 9% ( from 7,7% in the com­pa­ra­ble pe­riod) and 8,1% in its full-year to Fe­bru­ary. Ven­ter says that was due to a num­ber of fac­tors, mostly in its tele­coms busi­ness (the big­gest con­trib­u­tor).

Al­tech Au­topage Cel­lu­lar had im­proved ef­fi­cien­cies and cost con­trol. It had also launched its data of­fer­ing and had 57 000 mo­bile broad­band sub­scribers by endAu­gust. Its ini­tia­tives, such as data that will mit­i­gate the de­clin­ing av­er­age rev­enue per user fig­ures, were brought about by high pre­paid cus­tomer growth. Au­topage had a to­tal of 941 000 pre- and post-paid cus­tomers at end-Au­gust, Al­tech re­ported.

Ven­ter says the ac­qui­si­tion of the Sameer ICT Group in Kenya, which launched Al­tech as a player in the East African broad­band mar­ket and con­trib­uted rev­enues of R173m and R27m to af­ter-tax prof­its in the six months, had also helped mar­gins dur­ing that pe­riod.

Ven­ter says Sameer al­ready had 2 400km of fi­bre in the ground and was rolling fi­bre out at a rate of 7km/day in Kenya. “We’re sell­ing band­width there faster than we can lay it,” he says. Sameer also has net­work li­cences in Tan­za­nia and Uganda, and Al­tech is also rolling out a Wi­Max net­work in Rwanda. In ad­di­tion, the group has taken a 10% stake in re­gional un­der­sea ca­ble op­er­a­tor TEAMS.

Al­tech Net­star, an­other tele­coms busi­ness con­stituent, added 21 000 sub­scribers to its stolen ve­hi­cle re­cov­ery base, which now is 461 000 ve­hi­cles, mak­ing it the mar­ket leader. In ad­di­tion, Al­tech claims to have a 20% mar­ket share in fleet man­age­ment (where Digicore is the mar­ket leader).

Al­tech’s set-top box man­u­fac­turer – UEC – is de­liv­er­ing low-cost set-top boxes pi­o­neered in SA to In­dia. Ven­ter says those same set-top boxes would work well in SA’s move from ana­logue to dig­i­tal tele­vi­sion. He says it re­mains in dis­cus­sions with Gov­ern­ment re­gard­ing its par­tic­i­pa­tion in that re­gard but feels it can play a lead role while help­ing to bring in other par­tic­i­pants, such as black-owned SMEs. “We can’t do it alone,” Ven­ter says. UEC’s man­u­fac­tur­ing ca­pac­ity is 2,2m set-top boxes/year and dig­i­tal mi­gra­tion would in­volve 7m over three years.

But al­though Al­tech NamITech’s Nige­rian op­er­a­tors con­tinue to grow in leaps and bounds its SA op­er­a­tions dis­ap­point­ingly turned an­other – al­beit re­duced – loss over the pe­riod.

Asked whether NamITech SA was worth re­tain­ing (given its past per­for­mance and the con­tin­ued com­pet­i­tive en­vi­ron­ment), Ven­ter said there were “no sa­cred cows” in the group and the board would al­ways eval­u­ate its busi­nesses go­ing for­ward. Mean­while, a huge ef­fort had gone into fix­ing NamITech SA and the op­er­a­tion would be prof­itable.

Per­haps the big­gest re­cent victory for Al­tech has been its suc­cess­ful High Court ap­pli­ca­tion to al­low value added net­work ser­vice providers, in­clud­ing it­self (the li­cence falls un­der Al­tech Stream, its broad­band divi­sion), to build their own net­works. But dis­ap­point­ingly, Com­mu­ni­ca­tions Min­is­ter Ivy Mat­sepe-Casaburri de­cided to ap­peal the rul­ing. Ven­ter says Al­tech would op­pose that and if nec­es­sary join the in­dus­try in a class action suit against her “un­con­sti­tu­tional” at­tempt to change SA’s Elec­tronic Com­mu­ni­ca­tions Act.

Ven­ter re­it­er­ated that it would con­tinue to fight the mat­ter on prin­ci­ple but hadn’t yet de­cided whether or not to build its own na­tional net­work. It spent R8m build­ing a test Wi­Max net­work in SA but had since dis­man­tled that and re­de­ployed its lessons to its East African op­er­a­tions.

IT’S HUNT­ING SEA­SON IN the di­a­mond and gem­stone ju­nior min­ing sec­tor as share prices col­lapse across the board and in­vestors ig­nore the kind of good news that just six months ago would have sent such shares soar­ing. Toronto- and JSE-listed Rockwell Di­a­monds is fight­ing off a hos­tile bid by Swiss-based Pala In­vest­ment Hold­ings, while Lon­don AIM­listed Tan­zan­ite One is un­der at­tack from AIM-listed Gem­fields, which is con­trolled by JSE-listed Pallinghurst Re­sources.

Pala is of­fer­ing C$0,36/share for Rockwell, which cur­rently sits at around $0,30 and has traded be­tween $0,16 and $0,70/share on the Toronto Stock Ex­change over the past 12 months.

Gem­fields is of­fer­ing 45p/share for Tan­zan­ite One, which has ranged in price over the past 12 months from around 110p to a low of 25,5p/share im­me­di­ately prior to the Gem­fields bid.

Re­sponse from both takeover tar­gets is the of­fers be­ing made “sig­nif­i­cantly un­der­value” their com­pa­nies.

But that’s the pic­ture through­out the di­a­mond ju­nior sec­tor – not to men­tion the en­tire ju­nior min­ing sec­tor, where share prices have been ham­mered into the ground ir­re­spec­tive of the fun­da­men­tals of the var­i­ous busi­nesses.

Clas­sic ex­am­ples are JSE-listed Trans Hex and AIM-listed Pe­tra Di­a­monds, which is now SA’s sec­ond largest di­a­mond pro­ducer af­ter De Beers, from which it’s bought a num­ber of as­sets, in­clud­ing the Koffie­fontein and Cul­li­nan mines, as well as the Kim­ber­ley Un­der­ground op­er­a­tions. Early in Septem­ber, Pe­tra also agreed to buy De Beers’ 75% stake in the Wil­liamson mine in Tan­za­nia.

The ac­qui­si­tions will boost Pe­tra’s di­a­mond pro­duc­tion from 200 000 carats in the year to June to more than 1m carats in the year to June 2009.

Pe­tra’s track record at Koffie­fontein has proved its man­age­ment can suc­cess­fully turn such mar­ginal mines around. RBC Cap­i­tal Mar­kets an­a­lyst Des Ki­lalea says Pe­tra will hit its 1m carat/year pro­duc­tion tar­get ahead of pre­vi­ous fore­casts, while Pe­tra will still hold US$25m in cash af­ter its Wil­liamson ac­qui­si­tion.

Fight­ing talk. Craig Ven­ter

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