Altron pencils in UK listing for Bytes for fourth quarter

Allied Electronics Corporation (Altron) will list its UK unit in the fourth quarter of 2020 as the company sharpens its focus on Africa and unlocking value trapped in its shares.

Altron announced in April that it would spin off Bytes, which provides software, cybersecurity and cloud services, following a strategic review of its portfolio that found that the value of the subsidiary was not reflected in the group’s share price and that its growth trajectory was different from the rest of the businesses. 

Altron shares are trading at R19.26,valuing the group at R7.71bn.

In a presentation to shareholders, the company said it aimed to list Bytes UK, the biggest contributor to total revenue, on the London Stock Exchange, with a secondary listing on the JSE in the fourth quarter of this year. 

Admission on the exchanges was set to take place in in the fourth quarter “subject to market conditions”, the company said. 

Altron had 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, meaning the group itself would not raise any funds from the transaction.  

The group, led by CEO Mteto Nyati, has not disclosed its valuation of Bytes UK. 

Bytes will enter the volatile equity market that has been hit by the global Covid-19 pandemic. The company is poised for growth given increasing digital transformation across industries, growing cloud and cybersecurity usage and regulations spurring on IT spending — all trends that would help its future expansion. 

The company is chasing a market of 43,000 private-sector companies in the UK with at least 100 employees each, with IT spending estimated to have reached £100bn in 2019.   

Ruhan du Plessis, an analyst at Avior Capital Market, said Bytes UK could be worth between R5bn and R13bn when considering its peers in that country. 

“Valuation will become clear when they release the prospectus,” he said. 

Irnest Kaplan of Kaplan Equity Analysts said “the spinning off of Bytes UK is certainly an exciting development in the Altron journey”.

“It has the potential to realise and unlock value for Altron shareholders,” he said. Bytes UK had an excellent growth track record of selling software in the UK and had a strong relationship with Microsoft.

“They're ‘backing the right horse’ because Microsoft is doing very well globally and is likely to continue doing so in the years ahead. 

“It will also be exciting to have such a company listed on the JSE as a secondary listing. Investors can then choose which part of the Altron group they want to invest in for the future,” Kaplan said. 

In addition to sales, Bytes is also the biggest contributor to Altron’s total earnings before tax, interest, tax, depreciation and amortisation (ebitda). The group saw an increase in ebitda of 14% to R1.8bn, while revenue rose 6% to R16.7bn for the 12 months to end February 2020.

Bytes UK, the biggest reseller of tech giant Microsoft products in that country, increased ebitda 66% to R611m. Despite low economic growth in SA and Brexit concern in the UK, Altron’s operations continued to deliver growth, the company said.

The unit had gross income of £722m for the period, reporting a 24% rise in gross profit to £80m.  

gavazam@businesslive.co.za