Good news and bad news from Altron group

Mergers, Acquisitions and Financial Results

Mixed expectations out of electronics and communications group Altron, and its major listed-subsidiary Altech, indicate the volatility of the current business environment and the need to generate cash, analysts say.

Each of these companies issued trading updates today that indicate the schizophrenia of the overall electronics and IT markets during the current financial slowdown - where Altron and Altech are both heavily exposed.

Altron owns 62% of Altech and 100% of IT group Bytes Technologies and Powertech. Altech, in turn, owns a number of subsidiaries, including Autopage Cellular, Altech Netstar, Altech Isis and its East African operations.

The statement from Altron said basic earnings per share would tumble by between 18% and 30% for the full year that is due to end 28 February. Diluted adjusted headline earnings would drop by between 25% and 35% at the same time.

In the 2008 full year results, the group stated its headline earnings per share had surged 33%, to 375c, and diluted headline earnings per share had risen by the same amount, to 327c per share.

The second update was from Altech stating its adjusted headline earnings per share for the same period were expected to rise by between 10% and 19%. Last year, the group posted headline earnings per share of 511c, a rise of 23% over the 2006/7 financial year.

Johannesburg Stock Exchange investors hit Altron's share price hard, causing it to plummet more than 9%, to R21, but only gave Altech a slight boost raising it 1%, to R51, in morning trade.

While Altron says it and, in particular, its wholly-owned subsidiary Powertech, have been affected by the global market turmoil, Altech notes this has not been the case with its business.

“What we are seeing here is that Altech, which has a lot of annuity income type businesses, is less vulnerable in the current market, than those that depend on high-value contracts,” says Neil Stuart-Findlay, an analyst with Investec Asset Management.

Johannes Visser, an analyst with Regarding: Capital Management, says: “We will have to wait and see if Powertech is slowing growth down for Altron over the longer term or if it is a matter of underlying write-offs.”

Both analysts say Powertech, which operates mainly in infrastructure development, such as laying cables, has been a victim of slowing growth in the private sector and uncertain spending by government.

Powertech also has a high exposure to the falling copper price and that commodity has almost halved in value on the international markets, falling to around R31 000 per ton compared to about R52 000 a year ago.

The analysts also say Altron's Bytes Technology Group is just managing to keep its head above water with the slowdown in the corporate ICT market.

“I think Altron is trying to be conservative and reset expectations,” Stuart-Findlay says.

“Judging Altech is also quite difficult at the moment. It has a lot of cash on hand and it is highly acquisitive and so its future will be heavily dependent on those acquisitions,” Visser says.