Altech – a TMT strategy that works
By Eyal S Shevel
Altech‘s results for the year to 28 February 2002 were the latest in a line of excellent earnings to have been reported by the company. Headline earnings per share (HEPS) grew 21,5% to 268,1c despite the depressed global climate for telecoms, multimedia and technology (TMT) companies.
Over the past five years HEPS has grown at an annual rate of 33%. The operating improvements within the group were also significant with margins increasing to 9,9% from 7,7%. This translated into R357 million operating income notwithstanding the marginal decline in revenue. A dividend of 100c was declared.
Strong earnings performances were apparent throughout the group. In the telecoms division, both Autopage and Netstar entrenched their positions as the market leaders in their respective fields.
Autopage’s cellular subscriber base grew to 460 000 users while Netstar attracted an average of 8 000 new users per month to end with 160 000 subscribers. Altech’s stake in Alcatel Altech Telecoms is to be sold to Alcatel CIT of France. The price has yet to be finalised but should be in the region of R330 million which should add about 7c to earnings per share in the coming year. In the multi-media division UEC, the set top box manufacturer, continued to deliver cutting-edge products.
The group saw its international presence expand further, especially in Africa and the Middle East where growth was particularly robust. Arrow Altech Distribution’s brand gained awareness and acceptance as a reliable supplier of electronic and computer components in SA which culminated in a new distribution agreement with Microsoft.
The technology division also had a good year. The focus of the year was on consolidating the three smart card companies into one unit, Altech Card Solutions. Although the division is small in the group context, it played a crucial role in developing the necessary technologies to facilitate the convergence of the group’s various multi-media offerings.
The outlook for Altech is undoubtedly positive.
The company is in a strong financial position as a considerable portion of its income is annuity based. The benefits of the annuity-based income were clearly evident over the past year when, in the face of the most severe downturn in the TMT market for years, Altech continued on its strong growth path, posting earnings gains in excess of 20%.
The large cash pile and robust cash flows provide further testament to the value of annuity income. Together they have provided Altech with the flexibility necessary to take advantage of opportunities whenever and wherever they arise. It has also provided the financial security required to undertake costly research and development programmes. This has resulted in the numerous cutting-edge products developed by Altech.
Opportunities abound for all the group’s major operating units. UEC has developed several products for both satellite and cable systems. Autopage has entrenched itself as the largest independent cellular service provider in SA while plans are underway to introduce Netstar’s leading vehicle tracking technology to the Indian and Brazilian markets.
The smaller businesses, (MediaVerge, Mobile Direct etc), have also established themselves as dominant players in the niche markets they service. In the technology division the recent deal to acquire Labat’s IT businesses and introduce an empowerment partner has opened the door to a number of new prospects.
The company’s strength has not gone unrecognised and over 2001 Altech received no less than five awards acknowledging its excellence in product development, export achievement and management ability. The combination of an exceptionally strong financial position, cutting-edge technology and a proven management team bode well for the group’s future profitability. Altech is the clear leader in the SA electronics sector with a significant amount of offshore earnings.
Although its share price has remained largely stagnant over the past 12 months, the potential for a major acquisition or an earnings-enhancing share buyback could provide the counter with the upward momentum required for a re-rating. As a result of all these reasons, the stock is rated a BUY.
- Eyal S Shevel is Financial Analyst at Sasfin Frankel Pollak Securities. This analysis first appeared in the SFPS Investment Letter, May/June 2002