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IT services a mixed bag in 2012 – analyst

Gareth Vorster

 ·30 Dec 2012

Nadim Mohamed, an investment analyst and partner at First Avenue Investment Management, believes that the performance of listed IT services companies on the JSE has been a mixed bag.

“System integrators such as EOH and AdaptIT have performed well and made value accretive acquisitions. We view these as high quality businesses and expect them to continue to gain share in their respective sectors,” Mohamed said.

He noted that Gijima has surprised in terms of underperformance and has lost several large deals such as Absa and SAPS.

“Net1 UEPS has also dropped substantially after a recent probe into possible corruption by US authorities,” Mohamed said.

Net1 is currently being investigated by the US Department of Justice (DOJ) Criminal Division and the SEC, regarding possible acts of corruption in South Africa.

Shares in Net1 UEPS Technologies fell R37.10 – more than 55% – in trade on the JSE on 5 December, after the group said it was being investigated.

According to Mohamed, First Avenue views Datatec’s exposure to Europe as being negative in the short-term.

Datatec said at the start of December, that it is unlikely to reach its published forecasts for the year ending February 2013, as Westcon’s performance in the third quarter had been weaker than expected.

“Since the group published its half year results on 17 October 2012, Westcon’s trading in Q3 has been slower than expected and comparatively lower than the same period last year,” Datatec said in a statement.

“On the distribution side, we think Pinnacle has a strong position as the largest player within most of its categories and strong ability to predict industry cycles – they have made excellent acquisitions and we think it is trading at a reasonable level given its excellent record of growth even during weak economic cycles,” Mohamed said.

In September, ICT group Pinnacle Technology Holdings increased headline earnings per share by 49% from 117.7 cents to 175.1 cents for the year ended 30 June 2012.

Revenue rose by 18% to R5.8 billion with earnings before interest, taxes, depreciation, and amortisation (ebitda) up 30% to R419 million.

The group lifted its dividends for the year by 52% to 35 cents.

“Mustek and other hardware-focused players have not been able to achieve the same levels of growth in this market,” Mohamed said.

IT Services

Stock return 1 Jan to 12 Dec, 2012

IT Distribution

Stock return 1 Jan to 12 Dec, 2012

“For 2013, the key themes in the local tech sector will be mobile data and cloud computing.  We believe these will have disruptive effects on existing business models and it will be interesting to see: 1) how fast these trends progress in the local market and 2) who the winners and losers will be,” Mohamed said.

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