San Francisco – Despite a fall in earnings, the expanding international strategy of technology group Allied Technologies [JSE:ALT] still holds promise, analysts say.
Altech reported a 28% decline in diluted headline earnings per share to 204 cents for the six months ended August 2010.
Altech CEO Craig Venter said that despite an overall drop in profit, particular subsidiaries were showing strong growth.
"Our converged services division increased revenue from R460m to R498m - this consists of Altech Stream East Africa, Altech Fleetcall and Altech Alcom," said Venter.
He explained that Altech Steam East Africa increased revenues but profits were under pressure due to postponements of certain projects at subsidiary Altech Kenya Data Networks.
"These projects will resume in the second half of the year and Altech expects an improved performance for the full year," he said.
Venter added Altech Fleetcall, Altech Card Solutions and a recent acquisition, Altech NuPay, performed well.
"Annuity revenue remains at 82% of total revenue and has to an extent countered the tough conditions," said Venter.
"Working capital management and stringent cost controls were emphasised throughout the group and our strong cash position and balance sheet still leaves us in a good position to take advantage of investment opportunities as they arise," he said.
"The group believes that performance for the second six months will be much improved on the first half-year as certain adverse factors which were specific to the period will not recur," stated Venter.
"Looking to the future Altech will continue to diversify its income base within the TMT (technology, media and telecommunications) sector through globalisation, M&A (merger and acquisition) activity and convergence opportunities," he said.
Venter explained that Altech has been "highly acquisitive" in the last decade, expanding the group globally and implementing a strategy of a transition from a telecommunications and technology company to a converged services group.
"This will remain the strategy going forward but for the remainder of the financial year we will focus specifically on Altech’s transition to broadband and the globalisation of Altech Netstar and Altech UEC," he said.
Industry analyst at Frost & Sullivan, Protea Hirschel said that Altech continues to suffer fallout from the recent global recession.
She added that a large portion of the group's South African revenue is dependent on the mobile telecommunications market that impacts on Altech Autopage Cellular, for example.
"Over the last year this market has seen lower subscriber growth rates and declining ARPU (average revenue per user) along with lower tariffs," she said.
"Interconnection rate reductions have had an impact on the company’s least-cost routing business too. Falling margins on submarine bandwidth have also weighed on the company’s profitability in East Africa as this market has become more competitive," added Hirschel.
Nevertheless, Altech's growing international footprint holds promise, she said.
"In East Africa Altech has positioned itself as a provider of high quality, reliable network infrastructure with depth in its product range and extensive network coverage spanning more than four countries," said Hirschel.
"With more than R1bn allocated to capex (capital expenditure) for its east African operations for the next year alone Altech is clearly committed to the region. This also makes Altech a partner of choice for global players seeking to expand into east Africa," she added.