Specialist tech firm Etion looks to higher GDP growth to lift its performance

SA’s economy needs to grow by at least 1.5% to 2% for specialist technology company Etion to realise strong growth in its domestic market, CEO Teddy Daka said on Tuesday. 

The JSE-listed technology group previously known as Ansys reported a loss of R2.9m for the year to March from a profit of R33.4m in the 2018 financial year. 

“If I look at our connectivity business, even if we’re growing at a steady 1.5%-2% GDP growth, that stimulates a lot of demand for our services,” said Daka.

“When GDP rises, there’s more disposable income, people upgrade from ADSL to fibre. That stimulates more demand for our products on the connectivity side,” he said. 

The group’s headline and basic earnings per share dropped to 0.56c from 7.26c. Revenue grew 4% to R595.9m, dragged down by its Connect and Create business units.

Etion recently bought information technology developer and cybersecurity firm LawTrust for R109m and the company is now known as Etion Secure.  It contributed R107m in revenue to the group. 

Drikus Combrinck, of Capicraft Investment Partners, said “LawTrust has a lot of potential in the long term”.

He said the acquisition could bring great revenue growth for the group in future, unlike previous deals that had contributed revenue growth only for a short time. 

Etion’s Digitise unit grew revenue to R96m, up from R77m in the previous year. 

With one of their biggest clients being railways, Daka said the  Digitise unit is heavily affected by the commodities market more than by local GDP.

“If commodities markets are down globally, it reduces demand for commodities, rail companies have fewer goods to move out of the country, which impacts them, which impacts us,” he said.

Combrinck said Etion is likely to be negatively affected by the expected slowdown of fibre roll-outs for its Connect business. 

“There will still be a lot of fibre rolling out, but the rate of roll-out will be decreasing and there’s definitely more competition out there,” Combrinck said.

Shares in Etion dropped 14.81% to close at 23c after it declined about 16% on Monday. The stock has fallen 86.8% from its previous five-year high of R17.40 in January 2017. 

gavazam@businesslive.co.za