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Huge Group positioned for growth

Paula Gilbert
By Paula Gilbert, ITWeb telecoms editor.
Johannesburg, 30 May 2016
CEO James Herbst says Huge Group's share price appreciation significantly strengthened its ability to contemplate mergers and acquisitions.
CEO James Herbst says Huge Group's share price appreciation significantly strengthened its ability to contemplate mergers and acquisitions.

Huge Group says positive cash flows from its principal subsidiary, Huge Telecom, have positioned the group well for organic growth and growth through acquisitions.

This as the tech company's revenue, for the year ended 29 February, rose 6% year-on-year to R217 million. Headline earnings per share rose 45% to 18.51c per share.

CEO James Herbst says the company is particularly pleased with the results, which saw operating profit also increased by 44% to almost R23 million.

Over the past year, the Johannesburg Stock Exchange (JSE)-listed firm's share price has risen almost 69%, and at close of trade on Friday was worth R5.10 per share.

"This price appreciation has significantly strengthened Huge Group's ability to contemplate mergers and acquisitions on a share-for-share basis. The volume of shares traded in the last year is also encouraging and this has strengthened Huge Group's potential ability to acquire companies for cash on the basis of a vendor placing of shares," says Herbst.

In March, it moved its listing from the JSE's Alternative Exchange (AltX) to the JSE main board.

Herbst says the company's prospects are very positive, especially in terms of performance metrics related to its principal subsidiary, Huge Telecom. This as the total number of customers increased by 35% over the past year and its total number of telephone lines grew by 20%.

"Sales activity remains high, revenue is increasing, gross margins are high and the resultant cash flows are expanding. Huge Telecom's cash flows now position Huge Group for growth, whether organically or by acquisition."

Huge Telecom now has over 12 700 customers. It provides fixed-line cellular routing services to over 9 800 customers, a 24% increase from last year and 122% increase since the 2013 financial year. Huge Telecom also provides small office, home office residential services to over 2 900 customers, almost double the customer numbers a year ago.

Mobile media

The group says it is committed to finding more opportunities in media that will assist it in creating value from its investment in Eyeballs Mobile Advertising. The company says the global software licensing agreement that Eyeballs signed with Media 24 last October "is profound" and it expects more transactions of this nature in the future.

"The parallel use of the Eyeballs Mobile Advertising technology by organisations with a global footprint is bound to enhance Huge Group's ability to leverage value from this investment. The Eyeballs Mobile Advertising technology therefore has an option value and with the rate of adoption of smart mobile devices, the real estate value in advertising to them is exciting."

After declaring an interim dividend of 4c per share in November, Huge Group chose not to declare any final dividend this year. This was despite a gross dividend of 4c per share being declared at the end of the previous financial year. The board says it decided to rather invest the available cash resources.

"The board has identified a number of growth opportunities - both organic and acquisitive - that it intends pursuing and for this reason believes it is important to build rather than distribute its cash resources."

During the period, former MTN SA CEO Zunaid Bulbulia was appointed to the Huge Group board as a non-executive director, and Dr Duarte da Silva was appointed non-executive chairman.

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