Is Adapt IT the next Datatec?

Finweek English Edition - - INSIDE - BY GUGU LOURIE

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.

Sibu­siso Sha­bal­ala

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