Mustek ponders BEE

JSE-listed hardware company Mustek, which is trading under cautionary, expects to make an announcement regarding black economic empowerment.

Releasing its interim results to end-December after the market closed yesterday, the company reported an increase in revenue, but a decrease in net profit. Mustek says it earned R1.57 billion from continuing operations in the six months to end-December, an increase of 8.28% over the year ago figure of R1.45 billion.

However, despite the revenue growth, the company's pre-tax profit moved down to R66.5 million, from R69 million, and net profit dropped 5.46%, to R52.15 million from R55.16 million. Headline earnings per share - on an undiluted basis - from continuing operations came in at 40.57c, compared to 47.24c. Earnings per share also lost ground, moving to 40.25c from 47.24c.

The company, which declared an interim dividend of 30c a share, said the "satisfactory operational results" were achieved despite a fluctuating rand exchange rate. The local units, says Mustek, performed as expected and are "positioned to continue doing so into the future".

It adds it is looking at various proposals relating to empowerment and will "make an announcement as soon as a decision has been taken on its preferred BEE partners".

Mustek saw pressure on operating expenses from foreign exchange losses, share-based payments and expenses from its Brazilian operations. Mecer Brazil, which incurred a loss of R10.6 million, will not receive any further capital investments and Mustek will continue its scaled down operations in Brazil.

The group's gross margin from continuing operations increased to 18.2%, from 15.4% in the corresponding period. This is above an analyst's report in November, which predicted a gross margin of 17.5%.

Looking ahead, Mustek says growth prospects for the next six months are likely to be influenced by the extent of government's roll-out of equipment replacement, industry market retention, growth by Mustek, the volatility of the currency and the demand for hardware and software.

Mustek is expected to see revenue growth of 19% in the full financial year, but the analyst expects this to slow to 9% in the following financial year. The analyst says Mustek, even with moderate growth, has the ability to return strong earnings growth and improve its margin in a weakening rand environment.

However, the company is also hopeful that a shift to Microsoft's latest operating platform, Vista, will bolster infrastructure sales. Increased broadband penetration and initiatives focused at the developing world are also expected to have spin-off effects.

"Current computer literacy levels are relatively low when compared to First World countries and must be raised to make SA and Africa globally more competitive. SA's home user and education market has barely been tapped and offers huge potential for future sales in the medium- to long-term," Mustek says.

The firm's share closed unchanged at R10.85 yesterday. Its 12-month high is R12 and its 12-months low is R8.60.

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