Why investors are wary of 4Sight exposure
4Sight will list at a steep premium to the net asset value of its sole asset if investors take up all the shares it is offering and it raises the full R300m it is aiming for ahead of the listing on the JSE’s AltX board in October.
The technology company, which released its prospectus on Thursday, is offering its shares at between R1.80 and R2.20 each, depending on the rand-dollar exchange rate by midday on October 12. It expects having a market capitalisation of about $75m.
4Sight owns 100% of Digitata Mauritius, a machine learning and artificial intelligence firm.
4Sight was newly incorporated for the listing and does not have historical financial data, but Digitata held assets of $18.7m, with $11.3m in debt, at the end of the 2016 financial year.
4Sight intends to use R52m of the proceeds of the listing to settle an amount Digitata owes for acquiring its South African subsidiary, with the rest earmarked for "go-to-market" projects. It is targeting the econometrics, medical sciences, bio-informatics, and astrophysics sectors.
But analysts are sceptical about 4Sight and its valuation.
"It smacks of a 1999 or 2007 [technology or property] listing … a bunch of businesses all put together to list in a hot space," said Simon Brown, the founder of JustOneLap.
"And I couldn’t make sense of their valuation."
Digitata’s exposure to telecommunications group MTN was also problematic.
The group recorded $10.4m in revenue in 2016, compared with $18.5m the year before, after the Nigerian Communications Commission imposed a $5.2bn fine on MTN, hindering Digitata’s growth.
"This had an immediate impact on revenue in that revenue from this group [MTN] declined in 2016 by 55%," said 4Sight.
"In addition, in prior years [MTN] contributed about half of the turnover, but this dropped to 20% in the 2016 fiscal year."