Annuity income the secret
Three-quarters is recurring, cushioning it from current economic slowdown
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