Altron plans demerger with Bytes UK to focus on African business
The technology company plans to separately list its UK subsidiary on the London Stock Exchange
In a bold step aimed at sharpening its focus on Africa and unlocking value trapped in its shares, Allied Electronics Corporation (Altron) plans to spin off its UK division in an initial public offering (IPO).
The decision, announced on Thursday, follows a strategic review of Altron’s portfolio which found that the value Bytes UK is not reflected in its share price, which fetches R17.80 and values the group at R7.1bn; and the division’s growth trajectory was different from the rest of the group.
As a result, the board decided to hive off Bytes UK, which competes with highly rated Peer Group in the UK capital market, and pursue a potential listing and share offering on the London Stock Exchange (LSE) and a secondary listing on the JSE, Altron said in a statement.
The deal comes at an inopportune time for shareholders with equity markets worldwide gyrating wildly as investors hunker down for a prolonged economic standstill due to worries about the coronavirus pandemic — which has triggered a fight for survival for companies from airlines to restaurants.
“While the board is cognisant of the current state of capital markets and the impact of market conditions on the success of the potential transaction, the board has deemed it appropriate to commence with the necessary preparation,” the company said.
Altron said the preparation phase would take between nine and 12 months, after which it would assess if market conditions have improved. If the deal goes through, all of Bytes UK’s shares would be distributed to shareholders.
Irnest Kaplan of Kaplan Equity Analysts said the chaos in global markets caused by Covid-19 bodes poorly for such a transaction as there is no guarantee that sentiment will have improved in the next nine to 12 months.
The deal separates one of Altron’s biggest contributors to both sales and core profit, or earnings before interest, tax, depreciation and amortisation (ebitda). Bytes UK, the biggest reseller of tech giant Microsoft products in that country, contributes 41% to the group’s annual revenue of R15.7bn and 23% to its core earnings of R1.6bn.
But it allows Altron to sharpen its focus at home and elsewhere on the continent, where it holds a licence to distribute Xerox office documents and printers, runs the vehicle tracking business Netstar, and a operates a unit that offers outsourced business activities such call centres.
Altron, which has 20,000 customers locally, has a direct presence in about 12 countries across the continent with exposure to 21 markets through its partnership network, and is focused on growing in security, the internet of things, data analytics and cloud computing.
Kaplan Equity Analysts said focusing on Africa is probably a good move for Altron in the long term as the the continent has stronger economic growth prospects that might attract potential new clients for Altron.
Altron’s relationship with Microsoft across different territories is a strength that the company can probably make use of to execute this expansion, said Kaplan.
Last year, Altron Karabina was awarded a licence to sell products and service support to clients on behalf of Microsoft.
Update: April 2 2020
This article has been updated with analyst comments.
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