BUY, HOLD, SELL

Small tech­nol­ogy com­pa­nies are hardly a blip on in­vestors’ radars, but they could of­fer an op­por­tu­nity to re­boot port­fo­lio re­turns

Financial Mail - Investors Monthly - - Contents - Marc Hasen­fuss

ISA HOLD­INGS

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. ●

PBT GROUP

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. ●

SILVERBRID­GE

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. ●

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