Alviva shares fall sharply on expected earnings drop
Shares in JSE-listed technology group Alviva fell sharply on Friday on news that earnings may fall by as much as 20% for the six months to December 2019.
The stock closed 22.93% lower on Friday at R10.25, the biggest one-day drop since March 2014. The company has a market capitalisation of R1.48bn.
Formerly trading as Pinnacle Holdings, Alviva manufactures and distributes information and communication technology (ICT) hardware and provides software-related services.
The company said its headline earnings for the year to December dropped by as much as 46% to R115m-R130m from R214m in the previous financial year.
Headline earnings per share (HEPS) are expected to be 86c-98c, a 33%-41% decrease from the previous year’s 146.2c a share.
Once a big player in the sector, Alviva’s share price has fallen close to 60% from its peak in August 2013.
The company, headed by CEO Pierre Spies, said its disappointing results are mainly as a result of the performance of its technology hardware distribution business, which was affected by the tough economic environment; operating challenges with its new enterprise resource-planning system; losses on forex positions compared to profits in the prior period; and changes in the go-to-market strategy adopted by a large vendor.
Irnest Kaplan of Kaplan Equity Analysts said he was surprised by the company’s financial performance. “It’s a surprise to me on the negative.”
Though the trading environment has been hard on the technology firm, Kaplan said it was unexpected that it would have such a negative impact on earnings.
For the comparable period to December 2018, Alviva cited “a challenging operating environment” but was able to report revenue growth of 20% to R7.7bn, while HEPS grew by 10%.
By the end of that financial year in June 2019, revenues were up 17% to R15.9bn, earnings before interest, tax, depreciation and amortisation notched higher by 5% to R860m with HEPS at 297c, a 9% increase.
“We will have to see the results and assess how the next six months may evolve,” Kaplan said.
Alviva said the rest of the decrease in profitability has been brought about by further impairment charges on a loan to an associate, and the introduction of new accounting standards.
Core earnings per share for the company are expected at 120c-136c, a 21%-31% decrease from 172.4c a share previously.