Prism`s profit rockets

By Iain Scott, ITWeb group consulting editor

Johannesburg, 02 Feb 2006

Strong performances by its transaction security and services divisions helped Prism Holdings to a 135.4% increase in interim attributable earnings.

Attributable earnings for the six months to December came in at R12.12 million, compared with R5.15 million for the same period a year earlier.

Revenue for the period rose 22.7% from R139.9 million to R171.69 million. The net margin improved from 3.7% to 7.1%.

The buoyant sales in the transaction security and services divisions, combined with a slightly weaker rand and last year`s share purchases by the staff trust, saw diluted headline earnings per share rise 69.2% from 1.3c to 2.2c.

Prism announced in December that its share incentive scheme had acquired 13.63 million shares, amounting to 2.3% of the group. At a price of 60c a share, the deal was worth R8.2 million.

Headline earnings per share rose 66.7% from 1.5c to 2.5c while basic earnings increased 177.8% from 0.9c a share to 2.5c a share.

Previous results have been restated to comply with international financial reporting standards.

The group`s gross profit margins have slipped marginally from 59.7% to 59.2% as a result of relatively stronger sales growth from lower-margin products, says CEO Alvin Els.

A 19% increase in operating costs, from R61.03 million to R72.59 million, is the result of an increase in investment in software development and selling and marketing activities.

The operating margin rose from 10.9% to 12.3%, while the cash flow statement shows that Prism generated cash of R15.12 million from operations, against R16.64 million previously. Cash resources on the balance sheet remained static at R52.97 million (2004: R52.92 million).

The net asset value reduced from 20.1c a share to 18.6c.

Chips are down

The chip and wireless division was the poor performer during the period, recording a drop in revenue to R59.04 million from R72.34 million previously.

"Trading conditions in the chip and wireless division are expected to remain difficult due to continued pricing pressures in an increasingly competitive marketplace," says Els.

"Prospects for the remaining business units continue to appear favourable considering the prevailing market and economic conditions."

As a result, the board is expecting growth in headline earnings for the remainder of the fiscal year, provided there is no material strengthening of the rand against the dollar. Prism intends declaring an annual dividend after the release of the full-year results, Els adds.

Prism has generated a lot of interest recently, with the share price rocketing upwards since the group issued a trading update to notify the market on the earnings increase.

The group admitted late last month that the share price movements and volumes were abnormal, and because of this, issued a cautionary announcement saying it had been in discussions related to approaches to buy Prism.

Although the notice led to a flurry of media and market speculation, Els stressed that no formal negotiations were under way and the group was approached "from time to time". However, this time, because of the unusual share activity, Prism was advised to issue the cautionary.

At 1.03pm the Prism share was trading unchanged at 103c after 580 925 shares changed hands in 30 deals.