SA’s future: where ICT and telcos collide

 ·25 Jul 2012

Industry consolidation, driven by merger and acquisitions, will remain a strong trend in the traditional South African tech space, and also in the consolidation of the tech and telecoms sectors, according to an analyst at Thebe Stockbroking.

Keith McLachlan, a senior equities analyst of small- and mid-caps at Thebe Stockbroking says: “With a statement from Telkom, and hints from other telecos players, the long-term collision between the telecos and the ICT services markets appears inevitable and will also likely result in parallel market M&A-driven consolidation – most likely telecos-acquiring-tech.”

In June, Telkom said it would aim to marry its fixed, mobile and data offerings into a single solution and would also launch cloud services for business in Q3-Q4.

In an interview with BusinessTech, Telkom Business managing director, Brian Armstrong said that he expects a shake-out in the unified communications space, with fewer competitors in the market.

“Certainly [with] unified communications, we [Telkom] know who is trying to play: Vodacom, MTN, Internet Solutions, and Dimension Data. But none of them actually have all the building blocks necessary to deliver a compelling, fully-unified communications offer – which we do.”

According to the business lead, the SA ICT market was valued at R196.4 billion in 2009, and is set to reach R263.4 billion in 2014.

McLachlan questioned if there wasn’t perhaps something in the recent Business Connexion cautionary announcement, “although this may be just wild speculation on my part,” he added.

Earlier this month, JSE-listed IT services group Business Connexion issued a warning for traders to tread with caution when dealing with its shares as its company directors consider various opportunities.

“Also, look for the early adopters of new technology, for example, Gijima’s recent establishment as a value-added distributor (VAD) of Apple, particularly for iPad,” the analyst said.

In October 2011, Core Group, the VAD for Apple in Southern Africa, announced that ICT group Gijima had been appointed the first Apple-authorised systems integrator (SI) in the country.

SA ICT on the JSE

Overall, McLachlan noted that the ICT sector has run quite hard on a relative basis against the JSE All Share index (ALSi) over the last 12 to 24 months.

“This has been driven mostly by the relatively higher margin ICT services component, which remains robust and is likely to continue to perform well.”

He pointed to technology and outsourcing company, EOH Holdings as being a star performer in this particular sector, “while Gijima is the obvious example of a tragic under-performer”.

EOH Holdings has seen its share price rise to R35, and a market cap up to R3.46 billion, having traded at R20 in August 2011 – while Gijima has slipped from 72 cents in November 2011, to a current price of 42 cents and a market cap of R406 million, despite its government backing.

“The problem remains that the Technology Index remains trading on a premium PE of 14.5x against the ALSI’s PE of 12.3x, which perhaps implies it is a little top-heavy,” McLachlan said.

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