BUY, HOLD, SELL
Small technology companies are hardly a blip on investors’ radars, but they could offer an opportunity to reboot portfolio returns
Share price: 140c JSE code: ISA
BUY THIS SPECIALIST TECHNOLOGY group’s long name — Information Security Architects — sums up its offering. ISA operates in the sweet spot of customers needing to make sure they can securely leverage the benefits presented by rapidly growing information technologies.
The group’s annual report notes that the principal driver for the ICT security industry relates to the evolving threat landscape that is facing companies as hackers use increasingly sophisticated methods to tamper with or acquire sensitive information.
Forward-looking comments by CEO Clifford Katz reflect a rare optimism seen on the JSE in recent months. He says: “With the continued evolution and persistence of threats and attack vectors against corporate information and IT resources, together with the increased regulatory and legislative compliance requirements, stakeholders continue to elevate the importance of IT security within their organisations.”
By leveraging this positive sentiment towards the information security market ISA is likely to continue delivering aboveaverage tangible returns over time.
Some seriously generous dividends were forked out in the past financial year. On a modest earnings multiple of about seven, ISA’s share looks like a low-risk option on steady, longer-term growth. ●
Share price: 150c JSE code: PBG
HOLD WHILE THIS TECHNOLOGY group carries a small market capitalisation of just R200m, the operational and geographic span is surprisingly broad. Operations comprise BI-Blue Consulting, PBT Insurance Technologies, a 51% stake in CyberPro Consulting, PBT Technology Services Ireland, PBT Technology Services, PBT Group Europe BV, PBT Infosight, Stricklands Tetra Cape and a 70% stake in Technique Business Intelligence Software.
Performance-wise, PBT is solid rather than spectacular. Total aftertax profits from continuing operations in the past financial year was a fairly substantial R34m, with earnings coming in around 18c a share. The share offers fair value on a historic basis.
There are no outright forward-looking statements in the annual report.
Reading between the lines it seems PBT should churn out another satisfactory performance next year. In the past financial year management made a commendable effort to fatten gross margins markedly to 25% (previously 18%).
Cash flows were a tad underwhelming, but IM would expect a big improvement in this in the financial year ahead. Significantly, the annual report expresses optimism that dividend payouts will resume as a result of improved operating conditions. But IM thinks it might be some time before the market — wary of small cap counters these days — takes a serious look at the share. ●
Share price: 65c JSE code: SVB
SELL THIS SPECIALIST TECHNOLOGY company, which offers solutions to the insurance sector, has had a nasty fall from grace. The share traded as high as 332c as recently as early 2017, but sank, albeit briefly, to as low as 31c earlier this year. The past financial year was a shocker, with revenue down by about R8m to R88m, and bottom line slumping into the red.
Silverbridge CEO and major shareholder Jaco Swanepoel says the difficult past year meant a critical look at the business, especially how to navigate the tough period ahead. The customer base is not exactly in expansionary mode.
Silverbridge has trimmed operations to make sure the core business stays healthy.
IM does not see a quick — or convincing — bounce back in profits in the short term. But it would be amiss not to point out the attractions of a longer-term turnaround. In 2017 Silverbridge posted earnings of 41.5c a share, which — even though this was reduced to 20c a share in 2018 — should give some context to the position of the share price. IM would watch for signs of further weakness in this illiquid share
This is an opportunity for Silverbridge to deliver services that enhance the competitiveness of insurance companies and at the same time capitalise on moves by retailers and noninsurance companies to offer insurance lines to customers. ●