Altech's African venture pays off

Allied Technologies' (Altech's) venture into East Africa has been a “resounding success” and will be one of its growth drivers in the years ahead, it says.

This morning, the company reported revenue up 4%, to R4.7 billion, in the six months to August and net profit up 14%, to R322 million. Earnings per share increased 12%, to 294c, and headline earnings per share also improved 12%, to 292c.

Altech says its acquisitions in the last half of last year and the first half of this year are “all performing well, and individually and collectively promise to add significantly to our future trading performance”.

The company has undertaken several recent acquisitions in East Africa, which is its major focus area.

These include Altech increasing its stake in Kenya Data Networks by investing a further $39.5 million into the company, which will be used to roll out the network.

In addition, Altech has acquired a further 1.8% equity holding share in KDN from a minority shareholder, for about $3.3 million. Altech now has a 60.8% stake in KDN.

The group has also acquired bandwidth capacity on the Seacom undersea cable system, which gives it access to the equivalent of 5Gbps, with the option to upgrade, within three years, to double this capacity.

Through KDN, Altech has acquired 8.5% of The East Africa Marine System (Teams) for $11 million.

Altech has established an office in Mauritius to hold, co-ordinate and manage some of its international assets as a result of the growing importance of its African activities.

In the last six months, the group acquired 50% plus one share in payments processing company NuPayment Solutions, for R53.5 million.

In addition, its strategic alliance with Seacom and Teams for marine bandwidth places the group “in an extremely positive position, which bodes well for the future”.

“With a strong order book and growing annuity revenue, the growth in East Africa, the liberalisation and deregulation of the telecommunications sector, Altech is well positioned for continued growth in its businesses for the remainder of the financial year,” it notes.

“It has been interesting to see Altech really direct a key focus on its East African operations,” says Frost & Sullivan senior ICT industry analyst Lindsey Mc Donald. She adds that although the region has felt the economic crisis, combined with recent bouts of political uncertainty in the last 18 months, "Altech has adopted a pragmatic approach and has prepared for the inevitable recovery".

Increased stakes in KDN and its partnership with Seacom will aid revenue generation, she notes. “East Africa remains a compelling proposition for the company and it is expected to continue to invest into this region. Altech will need to ensure it realises maximum value from its clients and this can be achieved by cross-selling within its large customer base.”

Interestingly, the company chose not to invest in infrastructure in SA, she comments. This has been something of a surprise, given that it campaigned so diligently for the conversion of VANS licences to ECNS licences, Mc Donald says. "Frost & Sullivan believes the main reasons for this are the glut of infrastructure investment currently under way in South Africa and the current economic circumstances .... It is possible that Altech could re-evaluate this decision in the next 24 months if the South African market shows a sufficient demand for additional infrastructure.”

Spending by companies on telecommunications is slightly down, as cost savings initiatives take centre stage in this tough economic climate. Competition in the South African market is also intense in the provision of broadband and cellular services, she adds. The market has experienced a degree of consolidation in the last two years and this has impacted on the manner in which companies are able to offer their services, she explains. “Altech's main challenges are therefore the high level of competition that it faces in the South African market and the economic uncertainty that could slow the rate of its increased investment into the East African region,” Mc Donald concludes.