Is tech recession-proof?
At the risk of sounding flippant, you’d be forgiven for thinking Altech was operating in a different environment to the rest of the world for the past six months.
The numbers, usually buried at the bottom of these stories, show growth (meaningful growth) across all key metrics. Headline earnings per share (heps), operating profit and revenue were all up.
Altech CEO Craig Venter, is most pleased by the improvement in the company’s operating margin – from 9% to 10%.
He smiles at the suggestion that the business is “recession-proof”. Without actually using those words, Venter points to analyst reports calling the group “defensive”.
A staggering 82% of Altech’s revenue is annuity income. After the publication of year-end numbers to February earlier this year, Venter said the target was to grow that annuity portion from 79% to 85% by the end of this year. There’s a hint the group could surpass this number.
He rather humbly says that Altech has been “better-protected against the downturn” because of this steady stream of income.
Business is good. Altech could quite easily have continued as it has in the recent past, progressively growing heps and revenue year-after-year.
“But we needed a growth engine,” says Venter, eyes fixed ahead.
Its investments in East Africa, through Kenya Data Networks (KDN), are that engine. It hasn’t been one taken lightly either. This is a R650m-plus bet. The fibre network, expanding at 12km a day, will crisscross Kenya, Tanzania, Uganda, Rwanda and the DRC. Already a lot of backhaul traffic is being carried for mobile operators on the backbone.
The early signs are positive. That business generated R97m in profit off revenue of R217m in the past six months (compared to total group operating profit of R479m of R4.7bn in turnover). The margins in East Africa are serious.
Right now, 18% of group operating profit comes from that region. Within three years, it will be 45-50%. As the East African market matures, you would think that margins would decline, but Venter doesn’t “see margins dropping”.
“Think about the scale of the network we’ve built in that region,” he says. It would take a competitor three to four years to replicate, “not that we’re being complacent about that”, says Venter.
He gives some indication of what savings customers in the region will see as they migrate from satellite to fibre: internally, KDN is seeing a R6m annualised saving.
Some question why Altech has “ignored” this market, and focused its attention on East Africa. Others have publicly called on Altech to be the disruptor South Africa so badly needs, to compete on the network-level in this country.
The group’s official stance remains: it is not going to invest billions in a network in this country.
However, Venter says that nothing is stopping them from taking what they’ve learnt in East Africa and “replicating it here”.
A lot of this rests on the availability of spectrum, a process Icasa is still busy with. Venter is not about to risk billions in building a network in South Africa, but by his own admission, he is not going to paint himself into a corner either.
Moneyweb
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