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Gold set for a major shake-u... Rumours fuel financials frenz... Cape looks good with the sun in Capricor... Dragnet of economic slowdown catches Pe... Yorkcor adds its weight to Safcol priva... Still a hidden hand in Gauteng's house o... Hardware to software gives Usko leading ... |
Hardware to software gives Usko leading edgeUSKO chief executive John Beck knows shareholders want the value of their investment to grow. Since he took over at Usko last year, there can be no gainsaying that he has delivered on shareholders' expectations. He was appointed chief executive in June, "the dawning of a new era," Beck tells members of the Investment Analysts Society, when Usko was a moribund electrical group pottering at 38c. This week the price hit 390c - more than tenfold appreciation in eight months for a market capitalisation of R1.6-billion, more than that of Altron, where Beck served many years ago. The change started in November 1995 when Capital Partners bought Iscor's stake in the company. Soon after, Beck, Fedsure Asset Management and Genbel replaced Metkor as the other large stakeholder. "When Sammy Marks founded Usko in 1911, the dominant industries were agriculture, iron and steel, mining and heavy industry. Marks invested in those growth areas but they are mature industries with limited growth potential. Without change, the prospects look bleak and we have to take Usko into the information age," says Beck. He sold two assets for a total of R52-million and, while there is no rush, consideration will be given to Usko's other original businesses in aluminium, copper and steel wire, cables and similar products. A new business will be built using the existing cashflows. Having considered a name change for Usko, Beck has grown to like it and it is likely to stay stay. Beck counts four 'F's in identifying the group's core organisation: a flat structure, fast moving, flexibility and focus. He later adds having fun to this list. Head office is small with all functions decentralised. But everybody, right down to the tea lady, has an equity stake in Usko under a share-option scheme: "They all watch the share price every day. Our people are also incentivised using economic value-added methods. There is no limit to the amount by which they can increase their salaries because if they are generating that much wealth for others they should be sharing in it themselves." He says this is encouraging young talent, who might otherwise seek to emigrate, to stay in SA. Usko aims to add value for its customers, mainly software supply to the Top 200 companies: "There's no room for a fancy mission statement nobody can remember the wording of," says Beck. Usko's management team of Mike Bergen, Paul Wootton and Rob Katz competed with Beck to see who could speak the fastest in an information-packed presentation to the analysts, many of whom were worried that Usko had overrun its potential. Beck gives earnings forecasts: in the year to September 1998 Beck hopes for 10.3c a share, 17.7c in the following year and 23c by 2000. The biggest money is to be made in Mediswitch, which Beck says can contribute R2-million this year, then R50-million and R78-million. As Usko's first move into electronic commerce, Mediswitch was bought from SA Druggists last year in need of further development. Beck reckons it is six to nine months ahead of the competition: "In IT terms, that's a long way ahead," he assures. Mediswitch is an internet-based message-switching service that links perhaps 35 000 healthcare service providers, speeding up information flow and payments and reducing fraud, resulting in fast delivery and cost-savings. The initiator pays 50c or so per request, cheap compared to the current system. "It could result in savings of R1-billion a year in terms of less fraud, lower costs and improved administration. We don't even have to market this, people are running at us demanding the service." Mediswitch lays claim to having recruited 68% of the "belly-buttons" (medical aid members and their dependants) out of a total of 6.5-million. There will be more than one player but Beck says there's room in a market worth R20-billion a year. "IBM came out from the UK to see Mediswitch: their eyes were as big as saucers when they saw how advanced we were." Telkom's internet service provider Intekomwill be able to supply Mediswitch's clients with a dedicated internet telephone for about R130 a month including the service-provider fee to avoid the need for desk-top computers in consulting rooms. Beck says the principles used in Mediswitch are applicable to other sectors: export-import, banking, retail, travel, the motor industry and mining: "More than 95% of SA businesses expect to use some form of electronic commerce by 2000." The same survey shows that 63% expect they will adopt some form of outsourcing, another growth area for Usko. Usko's first purchase on 1 August last year was MBA (Mike Bergen & Associates), a ten-year-old software and systems specialist serving companies. Employing 120 people in Johannesburg and Cape Town, MBA is making hay out of Year 2000 technologies as well as from its usual businesses. Usko then added another software company Enza, and Mediswitch. Next came a 60/40 joint venture with Old Mutual, the as yet unnamed Newco lead by Rob Katz. Initially, Old Mutual Employee Benefits is the only customer, but the intention is to perfect the improvements, then sell the skills to others. Next came the acquisition of Blue Sky Networking to serve a communications industry growing at 30% a year and much faster in terms of external communication. Usko has tended to pay cash when acquiring from a big company and to issue shares to vendors of privately owned companies. Beck says the Usko share's tradability - about 100-million a month out of 445–million in issue - has been a great attraction as investors can get in and out without damaging the market. It is already the fourth-biggest market capitalisation behind the most comparable shares, Didata, PQ Holdings and Datatec. Usko has a great balance sheet and expects still to have R105-million cash at the September yearend. The big "if" is whether Usko can lift its earnings quickly enough to satisfy the price-earnings ratio of about 40. Mediswitch is the key, and Beck is confident it will work. "We're crafting the building blocks for Usko as a long-term investment. We're not about to make three acquisitions a week; we are not that sort of company. Where we are now is not as important as where we are going." Usko eased a touch to 361c after the presentation. With some satisfaction I can look back on a good tip I made last June after Usko had already jumped to a heady 64c. If, as Beck suggests, Usko does earn some 18c only 18 months hence, Usko is trading on a forward price: earnings ratio of 20. I think it's worth more than that and I think the price will carry on climbing, albeit with the peaks and troughs characteristic of enormous tradability.
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