Small caps, big gains

While big cap ICT companies like MTN and Vodacom have provided attractive returns for investors of late, several small caps have been ‘star performers’ in the sector including the likes of EOH and Pinnacle Technology.

Keith McLachlan, a senior equities analyst of small-and mid-caps at Thebe Stockbroking told BusinessTech: “I quite like the price Business Connexion against its peers and with the upside optionality provided by its current cautionary.”

Business Connexion

In April, information communications technology group, Business Connexion reported a 43.5% rise in revenue for the six months ended February 2012, bolstered by the acquisitions of the UCS assets and Canoa Group during the previous financial year.

Revenue improved to R2.69 billion, from R1.87 billion before, while operating profit increased from R40.2 million to R130.8 million.

Diluted headline earnings per share increased from 9.3 cents to 22.1 cents, and cash generated by operations increased from R116.6 million to R265.2 million.

Research company Frost & Sullivan put Business Connexion SA data centre market share at 27%.

For the year to August 2011, BCX declared a final dividend of 14 cents, and a special dividend of 40 cents per share.

Shares in the business reached a year peak of R5.65 in December 2011, having traded at a five year best of R7.00 in August 2007. Shares in Business Connexion reached R4.60 on the JSE on Friday (10 August).

The group boasts a market cap of  approximately R1.8 billion.

McLachlan noted that for momentum small cap traders, Ellies, EOH and Pinnacle Tech were all worth buying.

Pinnacle Technology

For ICT products provider, Pinnacle Technology Holdings, its shares have spiked to R16.19, from an opening of R9.10 at the start of August 2011, and R4.30 back in August 2007. The group has a market cap of R2.75 billion.

On 23 July, the group advised that it expects headline earnings per share to be between 170 and 177 cents per share, for the year ended June 2012.

This represents an increase in HEPS of between 45% and 50% over the HEPS of 117.7 cents per share for the comparative year.

The company said it expects earnings per share (EPS) to be between 168 cents per share and 175 cents per share which represents an increase of between 39% and 45% over
the EPS of 121.0 cents per share for the comparative year.

In September 2011, Pinnacle reported a 45% rise in headline earnings per share to 117.7 cents for the year ended June 2011 from 81.3 cents before.

The board declared a dividend of 23 cents per share, up from 16 cents in 2010.

EOH

In March, technology and outsourcing company EOH Holdings reported a 29.8% rise in diluted headline earnings per share to 111.5 cents for the six months ended December 2011 from 85.9 cents a year ago.

In September 2011, it reported a 30.9% rise in diluted headline earnings per share to 173.6 cents for the year ended July 2011 from 132.6 cents the previous year. Revenue increased by 43.5% to R2.429bn and profit before tax is up by 56.5% to R234.4m.

Revenue improved 44.1%to R1.642 billion, while profit before tax jumped 54.9% to R169.2 million.

EOH declared a cash dividend of 48 cents per share, from 36 cents in 2010.

Shares in the group traded at R35.70 in the afternoon session on Friday (10 August), up from R8.75 at the start of August 2007, and R23.00 at the start of August 2011. EOH reached a year best figure of R36.10 in March.

Ellies

Electronic products group Ellies was boosted by the news that the Department of Communications (DOC) issued out a tender document for the manufacture of subsidised set-top boxes, last week.

Ellies is in the running to manufacture and supply the set-top boxes, which according to  McLachlan, is good news for Ellies, “if they get it”.

The group recently reported a strong set of results‚ with headline earnings per share up 73.3% to 54.45 cents for the year ended April 2012, from 31.42 cents a year ago.

Revenue grew 30% to R1.711 billion‚ while ebitda rose by 71% to R273.4 million.

Ebitda margin was 15.9% compared to 12.1% for 2011. The increase is primarily as a result of improved margins in the Infrastructure division‚ it said.

Profit before tax rose by 73% to R230 million as a result of improved gross profit margins and capacity utilisation‚ despite a loss from an associate amounting to R4.4 million.

A cash dividend of 10 cents per share was declared.

The group said its infrastructure division Megatron, would target new opportunities in the telecommunication towers and data centre infrastructure space.

With a market cap of R2.03 billion, shares in Ellies have rallied to a high of R6.80 at the end of July, from R2.10 in early September 2007, and R2.13 a mere year ago.

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Small caps, big gains