Why Altron could unbundle Netstar next

Fresh from the successful listing of its former subsidiary, Bytes Technology Group, in the UK, could Altron look at an unbundling of Netstar next as it seeks to unlock further value for shareholders?

Bytes was listed on the main board of the London Stock Exchange on Thursday with a secondary listing on the JSE. Altron said more than R7-billion in shareholder value was realised through the Bytes demerger.

Now, with Altron confirming in a statement that it is considering further options to unlock shareholder value, the attention of its board and management team may turn next to Netstar, its vehicle tracking and recovery business, whose competitors — including Cartrack and Mix Telematics — are worth more than the entire Altron group.

This is by no means a scientific exercise, but Altron’s market capitalisation following the Bytes demerger is lower than the market values of both Cartrack and Mix Telematics, despite having similar earnings profiles:

• For the year ended 29 February 2020, Netstar reported revenue of R1.54-billion and earnings before interest, tax, depreciation and amortisation (Ebitda) of R611-million. It had 833 000 subscribers.
• For the year ended 31 March 2020, rival Mix Telematics had 818 000 subscribers. Revenue was US$145.65-million (R2.14-billion at the time of writing) and Ebitda was $41.73-million (R613.6-million) — almost exactly the same as Netstar’s Ebitda. Mix Telematics’ market cap, at the time of writing, stood at R4.1-billion.
• Cartrack, which had 1.13 million subscribers as at 29 February 2020, delivered full-year revenue of R1.94-billion and Ebitda of R969-million. Its market cap, at the time of writing, was R13-billion.

Although Altron CEO Mteto Nyati won’t comment specifically on Netstar as a value-unlock opportunity, he said it is “very interesting” that Bytes, now that it has been listed separately, has a market value significantly higher than Altron’s, yet was producing roughly only a third of the Altron group’s profit.

Some of this discrepancy could be attributed to country risk – South Africa is seen as a higher investment risk than the UK – but it’s also due to a discount that investors attach to groups like Altron, as opposed to companies with a narrower focus, Nyati said.

“For Bytes UK, we looked at the sum of the parts. We looked at comparable (entities) elsewhere in that market. We then clearly saw it was highly undervalued,” Nyati said. “The board will do a similar exercise to see if there is the potential to do something (else like it). As management, it is our responsibility, with the board … if we find something similar … to act.”

With an Altron “capital markets day” coming up in early February, perhaps an announcement about Netstar — or other value-unlock opportunities — is not too far away.

In an interview with TechCentral on Thursday, Nyati described what remains after the Bytes demerger as “Altron 2.0”. He said there is a “lot of synergy” in the group and dismissed a suggestion that a total breakup of Altron’s various assets would make sense.

“One would hope the investor community would see the value. If not, we’ll have to look at other options,” he said. “Our priority right now is to demonstrate the true value of what is left behind.”  — (c) 2020 NewsCentral Media