The cracks in Bill Venter's empire
The company’s recent weak performance is not a reason to write it off, writes Colleen Goko
Family-run companies are a tricky business. After all, there is no guarantee that future generations will have the commercial acumen and know-how of the founders. Very quickly, billions can be turned into millions, and worse, or be squandered into nonexistence.
The JSE is littered with great and less great examples of what family-run companies can achieve. What is the position of Altron, the former darling of the IT and telecoms sector?
Founded in 1965 under the name Allied Electric by a young Bill Venter, the company had a total staff complement of six. In 2001, 3½ decades later, Bill handed over the reins to his son Robbie. At the time, Altron had 12 625 employees and a market cap of R1,9bn.
However, at present, as the company celebrates its golden jubilee, its market cap is at the same level of about R1,9bn — yet the JSE all share has grown more than fivefold to its current heights of about 53 370 points.
It’s an underwhelming performance which has led many to question whether they are witnessing the dissolution of the Venter empire.
In the recent past, the situation has been particularly worrying. Altron’s share price has plunged 65%, from R21,25 a year ago to R7,10. By contrast, those of the company’s peers have soared. For example, the share price of fellow member of the electronic and electrical equipment index Consolidated Infrastructure Group has risen 8% in the past year. Reunert has also increased in value by 8%. In fact, so dismal has Altron’s performance been that the company announced it would be changing its structure from family-managed to independently managed.
What lies behind this fall in the business’s fortunes?
Kaplan Equity Analysts MD Irnest Kaplan says the blame for the current trend at Altron cannot be placed solely at the family’s feet. “Sometimes family-run businesses put in place mechanisms to preserve control, as Altron has done, with the majority of the voting shares owned by the Venter family. If things are going well, there is no problem with this, and other shareholders enjoy the ride. This has been the case with Altron for many years with growing profits and dividends,” he says.
But when things go wrong, says Kaplan, a family’s control comes under intense scrutiny.
“Sometimes, the pride of the family can interfere with the objectivity required to take the right business decisions.
“In the case of Altron, I don’t think its current troubled situation is solely a function of being a family-run business, [but] it may have contributed,” he says.
You have to dig into Altron’s business to get a sense of its weak spot. In response to questions from Investors Monthly, CEO Robbie Venter identified four areas in the group that have posed challenges.
“The first is our electrical infrastructure business, Powertech, particularly Powertech Transformers, which is reliant on Eskom for a big percentage of its orders.
“The second challenge is from Altech Multimedia, which was significantly affected by reduced order intake in its core set-top box business in Africa as a result of delays in the roll-out of various African digital terrestrial
❛❛ In fact, so dismal has Altron’s performance been that the company announced it would be changing its structure
television programme,” he says.
Third on the list is Altech Autopage, once a heavyweight cellular provider but now a company that has suffered as profitability fell when the industry came under pressure.
Fourth, says Venter, is the Altech Node — the video-on-demand business that has been making losses. “[Node] will be closed as of 31 October,” Venter confirms.
Kaplan says several things went wrong for Altech at the same time — but while some of it wasn’t the company’s fault, in other cases, it appears to have been due to “misjudgments”.
In particular, the Altech Node has come in for severe criticism as consumers steered clear.
“At the time of the launch I felt that the offering at the price did not seem compelling to me, so I worried who would buy it.
“Perhaps the management did not react fast enough to the various challenges in these troublesome areas.
“However, it is easy to say that with hindsight,” says Kaplan.
Company founder Bill Venter had no comment to make.
His book In Pursuit of a Dream — Bill Venter and the Altron Story illustrates the passion and tenacity that took a young boy from Kensington, Johannesburg to business success. Venter first abandoned the security of a government job at the post office for something bigger and better. His next job was at Henley Cables, where he worked as an assistant site engineer. His real opportunity came with Standard Telephones & Cables. “Their diversification in the fields of electronics, electronic components and telecommunications offered significant scope for my ambitions,” Venter writes.
The company encouraged him to continue with his studies, particularly in subjects such as maths, physics and electrical design and wireless transmission. An average day for him then consisted of a full work day followed by evening classes four days a week. Later, having started his own business, he would go on to receive a graduate degree from the University of Johannesburg, an MBA from the University of Wales, and a doctorate, again from the University of Johannesburg. The focus of much of his research was into “familiness in business”.
The company may be struggling, but analysts warn that one should not to write it off.
Farai Mapfinya, head of equities and portfolio manager at JM Busha Asset Managers, says that with a longer-term investment horizon Altron could yet prove its worth to investors.
“We think a combination of strategic and execution shortcomings has hurt the business substantially in recent times.” Mapfinya says it’s not a “totally broken business” that can’t still be rescued.
“It could be a protracted period of challenges but we think that over the long term, there is some money to be made still within the stable.
“Business cycles always turn, and we think that if the company is able to ride this challenging period the business can turn the corner in the future.”
For one thing, Altron does have some good-quality businesses going for it — Bytes and Netstar foremost on that list.
Robbie Venter says that in future, Altron wil focus on these core assets.
“Altron will be taking steps to reduce its exposure to the manufacturing industry and focus on its core IT and telecoms assets. These are the areas where we have proven to have a competitive advantage, have the potential to grow and can achieve a good return on capital,” he says.
Venter’s goal is to rebuild a leaner, more agile business.
In recent interviews, he has stated that he will step down from his position as CEO only once Altron is on a stronger footing. “The business has enjoyed much success over the years and has also successfully managed many phases of change.
“Altron has publicly stated this year that it will be transitioning from a family managed business to an independently managed business,” he says.
Despite this change, he is adamant that as it stands, the plan is for the Venters to retain its majority (voting) shareholding.
Kaplan says Altron could go either way, depending on the remedial actions the company takes. “I would say there is a good chance that CEO Robbie Venter will lead a reasonable recovery, and I think there is potentially a fair amount of upside in the share price from current levels of around R7 to R8,” he says.
Altron could do worse, however, than to look back at how it got here.
Says Kaplan: “One needs to ask the question: how did they get to being a R20bn business over the past few decades? The answer is that they were a passionate, determined and highly capable family for a very long time.
“I have no doubt that the group will emerge much healthier and more profitable – albeit a bit smaller”.
❛❛ A combination of strategic and execution shortcomings has hurt the business substantially in recent times
Robbie Venter … took over in 2001.
Founder Bill Venter … continued his studies part-time after work.