Is Adapt IT the next Datatec?
Adapt IT has never been better positioned to grow as a globa l s of t ware a nd computer services group. In October, the company, with its roots in South Africa and customers in t he manufacturing, education, f inancial ser vices and energy sectors in more than 21 countries, had a market value of more than R900m. In the past two years, its executive team – under the leadership of CEO Sibusiso Shabalala – concluded acquisitions to the tune of R300m. Investors have clearly given the management’s growth strategy the nod. In the past 12 months, Adapt IT stock has spiked more than 94%.
The Durban-based company provided shareholders with 332% returns in the year to end June 2014. Last month, Adapt IT paid its 12th ordinary dividend of 8.23c per share.
Asked whether the acquisitions made by Adapt IT enhanced shareholder value, Shabalala’s response is a resounding “Yes.”
“They [acquisitions] have been signif icantly accretive, as evidenced by t he movement i n t he market capita l i sat i on of Adapt I T,” says Shabalala.
The company recently acquired AspiviaUnison, a South African-based cloud telecommunications intelligence and management solutions provider, which points to its ambitions to be a bigger player in the fast-growing
software and services industry.
The deal worth R200m would augment the company’s services in the financial services industry.
Adapt IT already provides business intelligence consulting to South Africa’s big four banks – Absa, FNB, Nedbank and Standard Bank.
The market approved of t he transaction on 28 October, pushing the shares price higher by more than 10%.
In the year to end June 2014, Adapt IT bought Aquilon group of companies, which now forms part of the Adapt IT Energy sector, and 40% of the issued shares in Fuel-Loc. The acquisition allows Adapt IT to expand into the growing energy sector in Africa and bolsters its SAP solutions.
The Aquilon group of companies specialise in SAP consultancies. It provides SAP services to six major oil companies trading in SA and globally.
To tap into this market Adapt IT, which generates in excess of R400m in revenues, has already invested R100m into the growth in oil and gas industries in the year to end June 2014.
Describing t he va l ue t hat t he company has derived from its acquisition of Aquilon, Shabalala says: “This acquisition has improved diversification and added a good line of business to the group, which we intend to grow. Most of the major global oil companies are clients, together with South African and other African companies.”
Shabalala also dismisses suggestions that these deals were management’s ploy to dress the business for a possible sale:
“Adapt IT is a very sound business with very good prospects.”
Given its solid growth record and sector diversification, is Adapt IT, which competes with Business Connexion, Datatec, Datacentri x a nd EOH, undervalued by the market?
“We believe the company has a good strategy and prospects, and we leave the market to determine value,” says Shabalala.
The company that employs more than 400 people has about 120 customers in SA, Asia, United States and Europe, providing software and services to 14 African countries.
It generates 25% of its turnover from foreign business with a specific focus on the rest of Africa.
It boasts customers such as BP, Chevron, Clicks, BHP Billiton, Eskom, SAB, Sasol, Tiger Brands and Total.
The company provides specialised (niche) software and related industry expertise.
Adapt IT is also providing services to its clients in the US and Australasia.
Asked if this was a sign that the sof t ware and ser v i ces group was seeking to make bold moves i nto the tough US and Australasia, the Adapt IT boss was non-committal. “We have clients in these regions, relating to our oil and gas, resources and education sector specialisation. We will continue to target opportunities in our niches.”
However, the company will continue to seek new revenue streams.
Shabalala says that the company is “looking for acquisitions in South Africa and selected markets”.
The company is planning to fund growth using a combination of scrip, new capital from a capital raising and further gearing to fund future acquisitions.
Adapt IT continues to attract investor appetite on the JSE. The stock rose 4.25% to close at 785c on Friday, 31 October.
Can Adapt IT continue to build on this momentum, or is the share near its plateau? Only time will tell.
It also remains to be seen how Adapt IT will continue to maintain its solid performance while fending off potential suitors.