The company buying up Altron shares

In recent months, Value Capital Partners made further big purchases of Altron shares. As recently as this week, the company snapped up a further R37.5-million worth of the shares, bringing the total acquired since June to more than R72-million.

The purchases reflect confidence in the group’s future performance by VCP, which is chaired by Antony Ball, the co-founder and former CEO of investment firm Brait.

Altron, the owner of vehicle tracker Netstar, was floundering when Value Capital Partners invested R400-million in the technology group in December 2016.

Valued at more than R3-billion on the JSE, the group has several software and services business, but has been shifting its focus to professional services in an effort to help organisations plan and implement their technology needs.

VCP had been set up just months before investing in Altron by Ball and his business partner, Sam Sithole, who was also a partner at Deloitte with Ball and became financial director at Brait. They saw themselves as “activist investors” – pursuing private equity in the listed space and helping companies which might have lost their way to become more efficient. VCP’s other investments are Metair, PPC, Sun International, Adcorp, Advtech, Pepkor, Tiger Brands and Lesaka Technologies.

Currently, VCP directors Ball and Tapiwa Ngara sit on the board of Altron, following the retirement of Sithole in February.

On Thursday, Ngara told TechCentral that in the past six years, VCP has worked with Altron management and the board to refocus the portfolio, drive earnings growth and maintain a strong balance sheet. One of the big wins was the de-merger and listing of Bytes Technology Group in 2020 in London and Johannesburg. That business, extracted from Altron, now has a market value eight times its former parent’s (and twice that of telecommunications operator Telkom).

Strategy

“We have more than 20% of the holding, which shows our increased exposure,” Ngara said on VCP’s investment. “It’s been very progressive since 2018 when VCP had 15%.”

He declined to answer specific questions relating to strategy – specifically on whether the company foresees a possible deal similar to the Bytes spinoff, or whether listing Netstar separately might be on the cards.

“You will appreciate we cannot comment on specific strategy,” Ngara said, “but we certainly have a long-term conviction that the group trades at a meaningful discount to its intrinsic value. It has an attractive portfolio with regard to digital transformation and its platforms going into the 4^th Industrial Revolution, across big data and the internet of things, for instance. It also has a strong balance sheet, a strong board and leadership team, and engaged shareholders, all of which make it an attractive prospect in the long term.”

TCS | Werner Kapp unpacks his strategy for Altron

Asked to comment on VCP’s involvement at Altron, the technology group’s CEO Kapp said it has “played a pivotal role in previous corporate actions undertaken by Altron, notably the Altron/Bytes unbundling. That resulted in substantial value creation for all our shareholders.

He said having experienced investors such as Ball and Ngara on the board, together with their active involvement in the business, has enhanced the board’s expertise.

“As Altron executes on its strategy to become the leading platform and IT services business in our chosen markets, we continue to see momentum as each business delivers on its target operating models,” Kapp said. “Early leading indicators highlight strong year-to-date performance with all operations on track to achieve their growth objectives, and our profit improvement strategies in Altron Systems Integration and Netstar are progressing well.”

Kapp said the group continues to be strongly cash generative and is sufficiently capitalised, providing a good platform to execute its immediate strategic plans.

Read: Why Altron could unbundle Netstar next

“In my view, this is what VCP sees as attractive in Altron and why they have increased their holding – we have a highly cash-generative business, with leading brands that boast excellent operations, and management supported by a very healthy balance sheet. The Altron share price is currently not reflective of these fundamentals, and VCP, like many other shareholders, see an opportunity in this.”

Equities analyst Irnest Kaplan believes VCP is pursuing a long-term strategy. “They’re investing because they think Altron has value, obviously. It hasn’t done particularly well recently – in fact it’s gone down over the last year – but VCP knows the company well and they think it will be worth more. They’re not thinking this year – it’s a five-year project.

Netstar

“As for hiving off Netstar, that’s an old story that’s been mooted for years, and I don’t see it happening. It’s a very different kettle of fish from Bytes, which was showing 15% growth for more than 10 years and has been growing at 20% for the last two years. Netstar is flat, it hasn’t done anything lately and has no good story to tell, so based on that, I don’t see it being de-merged,” Kaplan said.

“But we should take note of VCP. They haven’t told the market [what their plans are], but they wouldn’t be investing like this if they didn’t recognise value. Also, Altron has a really good new CEO in Werner Kapp from Dimension Data, who really knows his stuff. So, VCP must be feeling happy.”  — © 2023 NewsCentral Media

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