More ICT stocks could delist

After a year in which the JSE saw the delisting of behemoth IT stock Dimension Data and minnow UCS, analysts say more could follow.

Vox Telecom which is currently in the process of exiting the JSE, could be indicative of the challenging terrain that similar companies face on the exchange says Richard Hurst, senior analyst of emerging markets at Ovum.

According to Hurst, Vox’s move off AltX “signals that other entities might follow suit in the short term. These entities are likely to be in a very similar position and find the private-equity route an easier option at their early stages of their growth”.

Keith McLachlan, senior equities analyst at Thebe Securities, believes that Business Connexion may follow suit. The company which has had a challenging time in the public sector-due to a lack of business opportunities and on Thursday reported a decline in earnings is currently trading under cautionary said McLachlan citing this as a possible “signal that an overseas player is looking at it”.

In cautionary statement originally published on August 11, BCX stated that, “shareholders are advised that Business Connexion Group Limited has entered into negotiations which, if successfully concluded, may have a material effect on the price of the company’s securities”.

However, looking at the performance of the sector overall it has not faced as tough a season as construction companies, which are experiencing a slump. Despite facing a slightly turbulent year in the ICT space, JSE listed technology stocks have performed quite well overall, according to some analysts and industry observers.

“I think the ICT stocks performed reasonably well over the past 12 months driven by a positive sentiment and strong desire to capitalise on the opportunities in the ICT space in South Africa and the emerging markets,” said Hurst. Irnest Kaplan of Kaplan Equity Analysts agrees, saying that whilst the sector “is not booming, it is in good health.”

According to Hurst, some of the top performers in the market, in no particular order were, MTN and Datatec. “All of these entities have reflected high PE ratios of between 17 and 15 and high yields.”

Hurst adds that the common denominator between the three companies is that they “all have strong executive management teams with clear sound strategies that have been implemented to take advantage of the local and emerging market opportunities”.

Looking at some of the companies that performed as anticipated on Hurst’s list, are the likes of Vodacom, EOH, Altech, Blue Label Telecoms and Pinnacle. “These entities have been challenged by market saturation and increased margin pressure. However, focus on cost reduction and efficiencies have carried the day for these companies.”

McLachlan adds that Blue Label Telecoms was “assisted by its deal with Microsoft” which has since lapsed. The two entered into a strategic relationship in 2007 in which, Microsoft acquired approximately 12% of Blue Label Telecoms to drive services and products.

Meanwhile Secure Data and Gijima, had results that left much to be desired. Hurst said the two “saw a decline in share price and PE ratios”. Gijima was significantly affected by the decrease in public sector opportunities as well as its Home Affairs venture “Who Am I Online”.

Despite the ICT industry suffering from sluggish global economic growth recovery having a knock on effect on ICT local spending, Hurst remains optimistic on the future but is aware of hurdles that may present themselves.

“The next year will continue to bring its challenges and opportunities for the ICT sector, chief among them will be the development and adaptation of emerging market strategies as the competitive environment intensifies and issues such as efficiency and cost optimisation come to the fore,” said Hurst.

“Other issues that we could see is a move by some of the top ICT companies to seek a dual listing on foreign bourses as a means of access to additional capital or a method of making themselves attractive to acquisition,” he concluded.

Below is a table of listed ICT companies that show their total return year-to-date

Rank Short Name P/E Total Return YTD
1 POYNTING HOLDING 12.80488 150
2 ISA HOLDINGS LTD 12.57143 65.714287
3 PINNACLE TECHNOL 9.048428 54.758419
4 EOH HOLDINGS LTD 11.94332 30.960922
5 TELEMASTERS HOLD * 25.159992
6 DATATEC LTD 15.02248 23.485077
7 VODACOM GROUP 13.60641 21.15522
8 CONVERGENET HOLD 13.33333 20
9 ADAPTIT HOLDINGS 5.933682 16.346031
10 MUSTEK LTD 6.085692 12.222606
11 COMPU-CLEARING 15.82011 10.476191
12 PARACON HOLDINGS 10.2809 6.489681
13 MTN GROUP LTD 17.05508 5.882453
14 PBT GROUP LTD 30.139999 3.917037
15 VOX TELECOM LTD 7.154213 0
16 GIJIMA GROUP LTD * -10.666667
17 FONEWORX HOLDING 6.634416 -15.510206
18 ALLIED TECHNOLOG 11.82648 -16.592724
19 DATACENTRIX HOLD 9.513274 -16.752562
20 TELKOM SA LTD 9.049338 -17.918085
21 BLUE LABEL TELEC 12.14286 -18.209311
22 BUSINESS CONNEX 18.16609 -21.214327
23 SILVERBRIDGE HOL * -24.468084
25 AFRICA CELLULAR * -42.857143
27 SECUREDATA HOLDI * -57.142857
29 SOUTHERN ELECTRI * -84.848488

*Company’s, above that do not have P/E ratios have either been suspended from the exchange or have made a loss during the past operating period.

Source: Moneyweb

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More ICT stocks could delist