High-tech JSE listings rush to join high-jinks information band
Information technology companies are running at full tilt, and a spate of listings are expected, writes ZILLA EFRAT
A SPATE of information technology listings can be expected in the new year as smaller companies rush in to capitalise on the high ratings enjoyed by their larger rivals.
Smith Borkhum Hare's IT analyst, Duarte da Silva, confirms that IT companies across the board are speaking to sponsoring brokers, but he declines to name them.
Computer group Softline should debut on the JSE in February, followed soon after by IT products distributor Mustek.
The ball is rolling and it is not hard to see why. While the JSE has no separate listing for IT companies, a basket of seven stocks in the electronics sector - DataTec, Dimension Data, Fintech, IBM SA, Persetel, Q Data and Siltek - are loosely seen as the IT sub-sector.
They started the year out with a combined market capitalisation of R8,2-billion and are now valued at R20,7-billion - an appreciation of 154%, unmatched by any other sector on the JSE.
DiData, the best performer in this year's Business Times Top 100 Companies survey, began 1996 with a market capitalisation of R1,9-billion and is now worth R6,4-billion. Persetel's market value has jumped from R1,2-billion in January to R6,1-billion at present.
Boosted by international acquisitions, both now have market capitalisations higher than Investec Bank or Premier Group.
And, while the overall market has been falling out of bed lately, most IT stocks have been reaching all-time highs, continuing a re-rating of the sector that began in June last year.
On Tuesday, Q Data hit a new high of R12,40, helped along by a recent cautionary notice which has sparked talk of an international acquisition.
Its shareholder Siltek touched R30,75 for the first time ever on Wednesday.
Last week, DiData and DataTec also reached new heights while Persetel, which announced a move into electronic commerce on the Internet, did so last month. IBM SA peaked in August.
Like other companies in Bill Venter's electronic empire, Fintech's share price has been lagging behind its competitors. It was trading at R70 this week - well off its annual high of R80 in January.
This is in spite of a consistent growth record, its recent 29% rise in interim earnings in the face of difficult market conditions, and high regard for its chairman Dave Redshaw, who brought the company back from the brink of bankruptcy six years ago.
Da Silva says until tradeability and liquidity improve, it will be difficult for Fintech's share price to reflect its true value (which he believes is significantly higher than its present range).
After Fintech, Siltek has the lowest price:earnings ratio in the IT sub-sector and has not benefited fully from the share price gains of Q Data, in which it had a 42% stake at the end of November.
Some analysts, however, describe Siltek's management as conservative - deadly in the fast world of IT - and express concern about its ability to maintain exclusive rights to Hewlett-Packard products in South Africa.
IBM SA is seen as the safest of the local IT stocks as it has the lowest risk profile. While it should outperform the industrial index, its growth potential, restricted geographically by Big Blue in the US, is lower than, say, DiData, which some analysts believe could show earnings growth of over 50% in the current year.
Da Silva says the re-rating of IT stocks may have been overdone in the short term, but he expects these shares to outperform the industrial index in the longer term.
He says most IT shares are trading at a premium because they have been delivering real earnings growth rates and will continue to do so.
SA companies, facing heightened international competition, have a lot of catching up to do in the IT area. So has government which has cut back on its spending this decade.
Indeed, South Africa forks out, on average, less than half on IT than other countries do.
Surveys show SA corporate spending is about 1% of turnover. The international average, however, is about 2,5% - 4,5% in the US - and is likely to jump to 5% by 2010, boosting global IT revenues to $2,5-trillion (currently $500-billion).
On the prospects for 1997, da Silva says IT hardware sales, dependent on economic conditions, could experience some difficulties in the wake of tough trading conditions. These, however, could be moderated by pent-up demand.
IT companies involved in services and consulting, on the other hand, are likely to find that as the economy worsens, IT spend will rise as companies "try to work smarter through technology".