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[TOP STORY] Few ‘true’ tech stocks left on the JSE today

SIMON BROWN: I’m chatting now with Deryck Janse van Rensburg from Anchor Capital. Deryck, I always appreciate the early mornings. Sanlam made the announcement that they want a controlling stake in AfroCentric.

Read: Sanlam looks to acquire major stake in AfroCentric

It’s an interesting deal, pitched at R6/share. But they are not looking to delist. They want to get control, but other shareholders can remain. It’s going to make a liquidity issue. It has already been an illiquid stock, but it does give us a serious indication of what other parties in the market think AfroCentric is potentially worth.

DERYCK JANSE VAN RENSBURG: Yes, absolutely. I think this is just really the environment that we are in at the moment, Simon, where these sort of smaller-cap type stocks with lack of liquidity are trading at decent valuations. Obviously you’ve got to look through the very difficult period that we are going through at the moment from a market perspective, and this tide of rising interest rates. But certainly if you look in that smaller cap space – I think let’s just call it a private-equity type transaction where you come in with controlling stakes in the listed environment, where valuations look decent three years out – I think this is a theme that’s going to continue to play out through the course of the next 12 months.

So it’s a good business. I think it has a decent footprint, a decent market share, and a nice niche that they play in. I think there is a degree of predictability of earnings.

Obviously operating in that medical space, it’s more of a ‘want’ as opposed to a ‘need’ in terms of the potential revenue that could come through over the next two to three years. A nicely-run business I think. Sanlam has obviously put its foot forward and obviously sees through a lot of the difficult period that we are exposed to in markets at the moment.

This is the time where you’re going to start to see a little bit of M&A activity, where we’ll see the likes of what we’re seeing at the moment.

SIMON BROWN: Yes. And there’s valuation …. Medscheme has about 3.8 million members. That’s a chunky membership. It’s not as big as some, but certainly 3.8 million is a real number.

Datatec – I don’t know how much of a stock it is that you watch. What we don’t have much on the JSE is true sort of tech stocks. There are bits and pieces, there’s EOH, there are a few there.

There’s Bytes out of the UK. [Datatec’s interim] trading statement – is it a stock that that you watch that interests you, or is it not so much on your radar?

DERYCK JANSE VAN RENSBURG: As you say, there’s not a helluva a lot to choose from. I think if you just look at Alviva, that’s probably going to come off market at some point or should do. So there’s not a lot left from a tech perspective.

I think what one needs to be mindful of is that Datatec is very much a global business. They don’t operate just in South Africa. So they certainly are exposed to the sort of softer economic environment across all the different geographies that they operate in, particularly in the developed world. So the trading statement [was] a little bit softer. I think it was expected, obviously a little bit of a shock to the share price, but it was going to come through.

I think in the space that they operate in, in terms of management services and solutions that they put on the table for big corporates out there, people are going to be looking at cutting costs in this environment. You might find that this is going to translate into a lower earnings-type environment for the likes of a Datatec. I think it’s also a function of the different geographies that they operate in. So a little bit softer. I think the theme will probably continue over the next six months.

But you’ve got to keep an eye on it. I’m going to stand back from it for now, see where it settles, and make a call on where we could potentially enter into the trade or into the stock.

But I think that the sort of softer trading statement was expected in this environment. But [it’s] a decently run business with a nice sort of stable of quality assets in terms of what they offer out there.

SIMON BROWN: But I take your point, there is potentially going to be pressure as companies are trying to save some money, trying to cut back a bit.

Deryck Janse van Rensburg is from Anchor Capital.


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