JSE analysts are cautiously optimistic over the prospects for IT and telecommunications shares this year, although they say the risk/reward factor will be finely balanced.
Last year saw IT shares left struggling in the doldrums, while telecoms shares did well.
According to financial newswire I-Net Bridge, the IT index dipped 1.8% to 151.64 points from 1 January to 31 December 2004, while the telecommunications index rocketed by 48% to 920.86. Over the same period, the JSE`s benchmark FTSE Alsi index surged 21.85% to 12 656.86 points.
"2004 was definitely the year for value shares and that is a part of the JSE that the majority of IT shares do not feature in," one analyst says. "Part of the reason is that IT shares do not pay dividends, which are tax-free and give investors cash to hand."
"Interesting year ahead"
Piet Viljoen, MD of asset manager Regarding: Capital Management, says the generally upbeat mood about increased capital spending in the country, and the fact that the telecoms market is on the verge of deregulation, will make it an interesting year for IT and telecoms shares.
"These shares have some relatively good prospects and because of the changing nature of the market, we may see some new listings," he says. "Last year we had one telecoms player, DataPro, list and the need for capital to play in this arena may cause companies to seek it in the equity market."
Old Mutual Asset Managers senior portfolio manager Peter Leger says the risk and rewards ratio, particularly in the telecoms sector, may be too much of a risk for the banks.
"While a company may find raising a loan from a bank cheaper than the JSE in the current interest rate environment, the risk factor may be too much for the bank. This may force them to go to the JSE," he says.
Analysts are not betting which telecoms companies may be winners. Telkom, the incumbent heavyweight in the sector, may find the going tough as new entrants find ways to circumvent its stranglehold on the domestic call market.
"That arena has the potential to make people very rich, but the risks are great," Leger says.
Analysts consider cellphone operator MTN to be a well-run company and they have warmed to the way it has successfully handled its Nigerian venture.
"The problem here is that Nigeria is a funny country and anything can happen. They have to literally run that operation on a day-to-day basis," Vijoen says.
Dimension Data is the only real heavyweight IT share left on the JSE with a market capitalisation of R6.17 billion.
"DiData will be affected by global conditions as that is where it is positioning itself," says Leger. "And while overseas reports (such as Intel) have been upbeat, it is because of efficiencies being introduced such as improving margins, rather than a buoyant market."
International research group Gartner recently stated that IT budgets would increase by 2.5% during the coming year.
"In real terms that is flat growth," Leger says.
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