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.”
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|
|2||ISA HOLDINGS LTD||12.57143||65.714287|
|4||EOH HOLDINGS LTD||11.94332||30.960922|
|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|
|20||TELKOM SA LTD||9.049338||-17.918085|
|21||BLUE LABEL TELEC||12.14286||-18.209311|
|24||HUGE GROUP LTD||*||-40|
*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.