Tech wave is riding high
According to Kaplan Equity Analysts MD Irnest Kaplan, “there’s no way” that the sector will go through the same fall as post 2000. But he also says you should bear in mind the correlation between the industry and the share prices of the companies that operate within it. Kaplan believes there are a number of factors that bode well for the operating environment of the tech sector and that one or two stocks are perfectly valued to make the most of them.
The first point is the general buoyancy in the economy. Kaplan says the spin-offs for IT when companies are doing well are very positive. He believes system upgrades and expansions are undertaken under a healthy profit scenario. “When things go well then systems are changed.”
Kaplan’s second point is the rebound after Y2K. He says that, while we’re starting to see a demand for new hardware and services as companies kit-up again, his concern is that the business is not spread out enough. There is a surge in demand for tech services across the board, similar but not nearly as strong as the build up to the millennium. Basically the growth is more sustainable.
Then there is telecom reform, as he puts it. Kaplan says the race for fixed and mobile business will cut costs for the users and enable a higher apportionment of spend to IT needs.
Kaplan also sees an increase in IT spending within government departments along with a more efficient allocation of IT needs though the State Information Technology Agency (SITA). The government is likely to provide another boon to IT with its R300bn infrastructure spend. Kaplan calculates that 10% is likely to be directed at technology. “You can’t build bridges without an IT component.”
So, if all this is true and we see prospects in the tech sector improve, what companies should you be looking to buy?
Kaplan says looking at the companies that have shown good growth over the last twelve months may be looking in the wrong place. “I’m a value kind of guy,” he says, “and I look at the shares that are more undervalued.
Kaplan believes there’s great value in Simeka, an Altx listing that’s not very well known, Faritec, which has recovered well with the sector, and ERP.COM, that has huge potential after a change in CEO. He says stocks like Altech and EOH had risen sharply but had everything priced in. “If you do the valuation properly, then you’ll see that they’re trading at their value,” say Kaplan.
Technology unit trusts showed the second highest growth of the third quarter of this year at 14,02%. The only unit trust without an offshore mandate in the top 20 for the last quarter was the Momentum SciTech Fund of Funds.
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