Specialist technology group Etion is using its expansion into international markets as a way to hedge against the slow pace of economic growth in SA, says group CEO Teddy Daka.
With state-owned enterprises (SOEs) taking longer to place orders and spending less on projects, Daka said it made sense to look to regions such as the Middle East and the rest of Africa for growth opportunities, driven by demand for their cybersecurity products.
The company, which has traditionally manufactured equipment for locomotives at Transnet and defence technology, has shifted its strategy over the past year to focus on cybersecurity and growing its internal business.
Etion, previously known as Ansys, returned to profit in the six months to end-September, having received a boost from a recently acquired cybersecurity firm.
The group on Wednesday reported a profit-after-tax of R5.4m for the six months ended September 2019, a fourfold improvement from its loss of R2.4m in the same period last year.
This resulted in headline earnings per share increasing 294% to 0.97c, from a loss of 0.5c previously.
The group reported revenue of R308.6m, up 14.7% from R269.1m in the previous corresponding period, driven mainly by the effect of consolidating the results of the Etion Secure business for the period, and increased revenue realised from the internationalisation strategy.
Etion bought information technology developer LawTrust for R109m in June 2018, and the company is now known as Etion Secure.
Despite the government’s efforts to introduce business-friendly initiatives and investment in infrastructure that will benefit the economy in the medium to long term, Etion said the SA economy remains subdued.
The technology company said it has implemented measures to reduce costs, increase responsiveness to market conditions and to refocus business efforts to meet the challenge of thriving in the local landscape, as well as growing international revenue.
“There is a clear demand for the products and services of Etion in the global market and this indicates a positive outlook for the group in the medium term with the drive into MEA and other markets,” it said.
Etion’s cybersecurity business benefited from this trend as Etion Secure generated a segment profit of R20.9m for the period, on the back of its revenues growing to R114.1m. The group attributed this to an increased focus on growing international markets.
“We’ve predominantly been plying our trade in anglophone Africa. We’re now getting into francophone Africa as well, as well as Portuguese-speaking (lusophone) Africa. Those markets are opening up for us,” said Daka.
Etion’s Digitise unit grew revenue to R22.3m, up from R14.8m, compared with the same period last year. The 50% rise in revenue was due to the rollover of revenue from the delivery of the integrated systems display for a client.
Slow revenue growth from Etion Connect has continued due to reduced project spend from clients who have invested less due to a number of macro and microeconomic factors, the company said. The unit’s revenue decreased 15% to R102.2m from R119.8m, ending with an R2.8m loss after one of its customers was liquidated.
Moderate revenue growth has been recorded in Create due to delayed buying from the Middle East clients.
Drikus Combrinck of Capicraft Investment Partners said there was a muted market reaction to the company’s results. With such poor sentiment in the market segment, sustained improvement is needed before the market will have enough confidence to return in force.
On Wednesday, Etion’s share price was unchanged at 24c, having fallen 48.94% so far in 2019.
With some of the restructuring still to bear fruit, and with an increased focus on internal cost efficiencies and working capital management, the full year should show a continuation of the turnaround, Combrinck said.
The period thereafter should be much stronger as Etion Create might start billing new contracts as the development cycle swings up. Etion Secure is the wild card and may surprise the market with upside, he said.