Altron Still Needs to Convince the Analysts

Technology group Altron has produced its first interim results, for the six months to August, since two major developments. The first was the full incorporation of listed subsidiary Altech, and the second was the disposal of Altech’s loss-making African operations. CEO Robbie Venter told analysts that today’s were the first results to exclude underperforming and disposed-of East and West African Altech operations, plus the Altech integration (for one month of the reporting period.) He said it was the end of a long journey in consolidating the group, and accessing synergies. Already some benefits are being realised, including R10 million a year in terms of saved listing costs, the expense of a separate board, and so on. But the Powertech division of Altron is still underperforming. On a more positive note, Venter said he detects tangible signs of recovery in the building and construction industry. Revenue was up 6%, normalised heps up 15%. What did our experts make of it?

Lavan Gopaul of 28E:
The income stream is a combination of residual income and contracts they are able to secure in both the public and private sectors. The requirement to consolidate their two listed entities into one doesn’t have apparent benefits. It might have been more transparent if they had continued as separate entities, written off the losses in East and West Africa completely, and then consolidated. I would like to see them prove the savings they are claiming from the consolidation, when we get results for the full year.

Independent Analyst Ian Cruickshanks:
Certainly they are serious about cost-cutting. It is necessary. But one is left with the question of why the consolidation has taken so long. There was some shareholder disapproval earlier, but that was because of the way the consolidation had been structured. Many of the areas in which they operate are unlikely to grow much faster than GDP growth. It will be difficult to see them growing above that – which does not make a convincing argument for new shareholdings.

Craig Pheiffer from Absa Investments:
The first-half numbers from Altron were a first glance at the group in its newly constituted form, and reflected the benefits of having exited the loss-making East and West African operations that had dogged Altech’s numbers for some time. Following the buy-out of Altech minorities (effective 1 Aug 2013), Altech was included as a 100% subsidiary in the financials at the end of the half-year, but the benefits were limited to just the last month of the reporting period. While the operating environment remained tough there were numerous positives in the results, which lead one to believe that a turning point has been reached. The UEC set-top box business within Altech is producing at record levels with a good order book and the annuity business of Altech Autopage had a good earnings showing, despite lower revenues. Good top line growth in the Bytes business more than compensated for the slightly lower margins to produce a respectable 14% growth in headline earnings. The Powertech business struggled over the year but there are very positive signs of recovery in the order books for cables, transformers and system integrators. Much store is being placed on the benefits to be derived from amalgamating the Altech and Bytes businesses into a TMT cluster. Management points to potential cross-sell opportunities, better capital allocation and efficiencies through shared services that could boost revenues and profits (rather than only cost-savings from property consolidation and the audit fee and listings fee savings from one less company listing). Much store is also being placed on growing future revenue from Africa and the public sector. The market will like the turnaround and the outlook – but management ultimately has to deliver on the promises.

Conclusion:
After a long struggle, there is now just one entry point for investors into the Venter family empire that is Altron. It is now up to management to convince the investment community of the soundness of their strategy – by producing some worthwhile results. We shall watch this space.

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