Adapt IT's organic growth takes knock
DURBAN – Listed information technology company Adapt IT became the latest casualty of South Africa's sluggish economy in the six months to end December, recording its first-ever single-digit growth in normalised headline earnings per share.
The company said on Tuesday that its headline earnings per share halved 5 percent to 40.81 cents a share during the period from 10.3 percent last year.
Chief executive Sbu Shabalala said Adapt IT’s primary growth market stagnated during the period and slowed down project revenue.
Shabalala said this, in turn, affected organic growth, particularly in the energy and hospitality sectors.
“However, the acquisitions already concluded in the first half of the year position Adapt IT favourably to grow in the second half of the year,” Shabalala said.
The group announced the acquisition of Conor Solutions for R80 million in November and Wisenet for R53.4m in January. Shabalala said the group expected Wisenet to extend its education offering in Australasia and Conor to boost its communications product.
He said the group had already secured R350m to fund acquisitions going forward. “We recognised early in the year that our economy was growing at a slow pace and we decided to pursue acquisitions outside of the country by entering new markets and introducing new products,” he added. Adapt IT is a software provider to the education, manufacturing, energy, financial services, communications and hospitality sectors.
The group derives 78 percent of its revenue in South Africa, 14 percent in other African countries, 6 percent from Australasia and 1 percent each from the Americas and Europe.
It still managed to record a 10 percent increase in earnings before interest, tax, depreciation and amortisation (Ebitda) from continuing operations to R118m despite unfavourable trading conditions, while revenue from continuing operations increased 4 percent to R667m.
Shabalala said although the South African market remains challenging in the short term, the company had built a strong, well-diversified foundation that enabled it to target growth in the rest of Africa and Australasia with leading software.
Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said the 10 percent growth in Ebitda from continuing operations was entirely driven by profit margin improvement and acquisitions of new businesses. “There was no help from the economy as the company indicated that there was no organic revenue growth over the reporting period. Although the Ebitda growth is quite encouraging, unfortunately that has not translated into Heps growth,” Takaendesa said.
Adapt IT shares have de-rated significantly in line with industry peers due to weaker industry organic growth as well as concerns on ongoing acquisitive growth following the challenges experienced at peer EOH. “We expect shares in the sector to re-rate meaningfully only when organic revenue growth returns to levels above inflation,” Takaendesa said.
Adapt IT shares declined 2.35 percent on the JSE on Tuesday to close at R6.22.