FOCUS ON ACQUISITIONS
Adapt IT's growing cash pile a boon as share drops
Unlike its bigger rival EOH, information technology services firm Adapt IT is raking in cash.
The company’s cash increased to R257.7m for the year ended June against R139.3m the year before.
That will stand the acquisitive company in good stead as its shares, which have previously been used to buy smaller businesses in order to grow, have tumbled along with others in the IT sector in 2018, more than halving in value, although its stock rallied 2.14% on Thursday.
"We are buying back shares as we certainly believe our scrip is undervalued, so we prefer cash transactions," said CEO Sbu Shabalala.
The company, which delivers IT services across the hospitality, financial services, oil and gas and education sectors, cut its debtors’ days to 68 from 72, which it said had made a "huge difference". Almost 60% of Adapt IT’s sales, up 36% to R1.35bn in the period, are also generated from repeat business.
Still, Adapt IT is heavily reliant on acquisitions, which were responsible for 30% of growth reported in the financial year. In 2017 it bought Micros SA, an IT system used across the hospitality industry.
However, organic growth on continuing operations moved up from 6% to 13% and Shabalala said Adapt IT’s push into Kenya and Nigeria would sustain the company’s expansion without it having to rely on big deals.
Adapt IT’s gearing levels, at 29%, are considerably below the 50% threshold set by the board "so that means we do have sufficient firepower", said Shabalala.
Headline earnings per share rose 14% to 66.97c.
While the Reserve Bank this week warned that SA’s growth was likely to be even weaker than expected in the year ahead, Shabalala expects Adapt IT’s revenue to improve on the back of demand for its software, particularly from its African markets and Australasia.