Altech looks to Africa, Brazil

Africa already makes up 20% of Allied Technologies' (Altech) operating profit, and the company is looking at ways to bolster this figure.

This morning, the listed company released results that show operating profit up 7%, to R933 million, for the year to February, off the back of revenue growth from R9.16 billion to R9.2 billion. Headline earnings per share moved up to 605c from 592c.

CEO Craig Venter says he is “pleased” with the strong performance of most of the group's operating companies. However, the shining star in the results is Altech Stream East Africa, which now makes up 20% of the group's operating profit.

Venter says Altech's objective is to diversify the profit contribution so it has limited reliance on any one entity. “This has, to a large degree, already been achieved with the Altech Stream East Africa investment. We foresee that East Africa will be responsible of an even larger portion of profits in the near future.”

Altech's priority growth area is in the East African telecommunications sector, and it has invested heavily in the region during the past year. The company increased its economic stake in Kenya Data Networks (KDN), through a $39.5 million capital injection, which will be used to roll out the network.

During the year, Altech also bought stakes in east African submarine cables The East African Marine System (Teams) and Seacom.

KDN, in which Altech has a 60.8% stake, bought 8.5% of Teams and entered into a strategic bandwidth alliance with Seacom, buying an equivalent of five Gbps on the undersea cable, and selling $20 million worth of capacity on the terrestrial backbone owned by KDN to Seacom.

The company spent R483 million in capital expansion during the year, up from last year's R385 million.

Altech is also targeting growth in other emerging markets, through subsidiaries such as Netstar and UEC.

The company, which has R616 million in its war chest, wants to diversify its income base in the multimedia and IT sector even more through global expansion and merger and acquisition opportunities.

A potential opportunity is to expand into Brazil, through Altech Netstar, as well as various other emerging markets through Altech UEC, it says.

“East Africa will remain our main focus; we are currently bedding down the investment in six countries: Kenya, Rwanda, Uganda, Tanzania, the DRC and Burundi before we potentially roll out the Altech business model elsewhere in Africa,” says Venter.

Chris Gilmour, an analyst with Absa Investments, says Africa is “undoubtedly a huge springboard for growth going forward”. He adds that Altech could easily earn as much as a third of its operating profit from Africa.

“I can see Africa as being a great source of new income in the future. They are in the right area and they are doing all the right things... Everything seems to be working for them,” says Gilmour.

Frost & Sullivan ICT industry analyst Protea Hirschel says: “Astute investments in East Africa have already paid off handsomely for the company and continue to do so.” She adds that its investments in Teams and Seacom complement Altech's investment in terrestrial fibre networks in east Africa.

“On the one hand, this allows Altech to offer wholesale bandwidth at competitive prices in Kenya. On the other hand, it allows Altech to expand further into markets in Uganda, Rwanda and Tanzania,” says Hirschel.

Frost & Sullivan expects the contribution of the East African businesses to Altech's overall revenue and operating profit to continue to increase. This is due to data and other telecommunication services becoming cheaper for end-users, spurring uptake in these markets.

Altech's shares lost 75c in mid-morning trade, to R73. This represents a downward move of 1.02%. Parent company Altron's results are expected to be released on 3 May.