Johannesburg - Listed infrastructure provider Jasco Electronics managed to bump up its bottom line in the six months to August despite a small drop in turnover, as a focus on cost and efficiency, as well as the group's recent diversification strategy, paid off.
Key to that strategy has been a turnaround in the security division and the addition of a 34% stake in cable manufacturer M-Tec, which contributed to three months of earnings in the period under review.
The security turnaround came about under a new divisional CEO, Mel Davies.
Group CEO Martin Lotz said he had already done a "sterling" job in turning the business around, although there were also more opportunities available: "The market is more lenient than before; there's more business out there then before, but we've been able to get the business and execute on that."
Focused energy
Lotz said Davies was energetic and focused, but most importantly, he was able to get people to believe in their abilities.
Jasco's security division increased its turnover by 33% to R47.5m, with operating profits up more than fourfold to R5.7m (and expected to double by year-end).
Security contributed 19% of group revenue and after-tax profit in this period from 14% previously. Telecommunications contributed 58%, while the contribution from domestic products was reduced from 28% to 23% (excluding the M-Tec contribution).
The security division's numbers exclude a R45m rental contract for which Jasco has already delivered more than 60% of the equipment. Lotz said in terms of accounting standards it could not recognise this revenue until the rental contract kicked in.
The move into the rental market resulted in an upfront hit to working capital as the equipment is delivered, but it also results in an annuity income stream.
Jasco will soon change its year-end from February to June, to align itself with that of large shareholder AfroCentric (the firm bought 34.9% as part of the M-Tec deal) and M-Tec.
Headline earnings up
Lotz said it would report reviewed results for the 12 months to February in April, but audited full-year numbers to June in September next year.
Jasco reported revenue of R248.9m for the half year, a 2.2% decline on the comparable period, but operating profit before interest and tax rose 50.5% to R24.3m as the margin improved from 6.4% to 9.8%.
Headline earnings a share of 23.5c represent a 38.9% improvement on the previous period.
Jasco has traditionally made a third of its earnings in the first half and the remaining two-thirds in the second, but Lotz said M-Tec's contribution would smooth this seasonality somewhat, although it still anticipates a better second than first half.
This puts Jasco on a low forward earnings multiple of about five times.
Although the current slowdown in consumer spending had an impact on Jascoss consumer electronics division, Lotz says the bulk of the business is not exposed to the consumer.
Most of it is in infrastructure reliant on governments and telecoms operators. The only risk he would foresee to this is if the global credit crunch influenced their access to capital: "But I don't foresee that; that's a worst-case scenario."
Lotz said M-Tecss earnings were expected to be flat in the short-term due to some contract delays, but this was temporary and not a concern.
Jasco is not actively on the lookout for acquisitions, but Lotz said there were areas in the value chain where it could expand into, to sell to the existing customer base.
Should any such opportunities come along, it could look to expanding organically or conclude strategic acquisitions, like that of WiMax business RapidCloud.
In its telecommunications business, Jasco has continued to see a slowdown in spending by wireline operators, but has seen a significant uptick in spending on fibre and wireless networks. Lotz said the firm expected this trend to continue.
Jasco shares were up 2.4% to 255c in afternoon trade after the results. For shareholders the year has been a bit of a roller-coaster ride, from as high as 355c to as low as 210c.
But Lotz said there was more interest from a number of institutions in the company, and volumes of trade in the share had picked up this year.
- Fin24.com