Information technology (IT) firm Y3K on Monday moved its listing to the Alternative Exchange (AltX) and changed its name to Information Security Architects (ISA) Holdings.
The move of the listing forms part of the IT security company growth strategy, according to CEO Clifford Katz.
The process of reforming an ailing Y3K (which for the year to February 2004 reported an 18% decline in revenue to R9-m which directors felt "was not at an acceptable level" at the time) began with the acquisitions of ISA and iSecure for R6,9-m, payable in shares, on March 1 2004.
The company said at the time that the acquisitions would see turnover exceed R30-m and increase profitability for the 2005 financial year. "Should continued finance not be made available to the group," said directors, "Y3K may not be sustainable as a going concern. In this case, the realisable values of the assets may be less that the values reflected in the balance sheet."
The acquisitions did go through, however, and Y3K posted a threefold increase in revenue to R31-m, and net profit soared, albeit off a low base, from R135 000 to R3,2-m.
The company even paid a 2c dividend per share.
Despite making the acquisitions in March 2004, the directors sought permission from shareholders only more than a year later, in June 2005. Asked why this was, ISA CEO Clifford Katz said the company had irrevocable undertakings from the major shareholders that they would approve the acquisitions. Company secretary Ryan Price (who was previously Y3K's CEO), director Phillip Green, and Katz are in fact the company major shareholders, with 82% of the company between them.
With the company so tightly held by the directorate, investors might wonder why the company is listed, given that the purpose of being listed is to raise capital. Katz says that more flexible rules of the AltX are much better suited to ISA's growth plan: "In terms of its rules, the AltX allows a company to issue 50% of its shares in order to acquire other companies. On the JSE, that percentage is lower."
Irnest Kaplan, the managing director of Kaplan Equity Analysts, views ISA as a "small but fast-growing company, and would recommend the company to "the more speculative buyer".
"It's a high-margin, tightly run business with determined management. We believe it can achieve headline earnings per share growth of 63% in the coming year. On a price/earnings basis, the share looks fairly priced, but our free cash-flow model shows there is good upside. Our current valuation is 59 cents per share," says Kaplan.
Kaplan says the company has recently been very successful in winning numerous high profile corporate IT security contracts outside the country, particularly in Nigeria.
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