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Life after BCX

UCS is a smart business that developed some formidable niches in software and services, particularly in the retail sector. However, the group’s more lucrative units have now been sold to Business Connexion Group [JSE:BCX], and UCS Group [JSE:UCS] has decided to pursue a delisting and a return to privacy for its existing operations. That’s also where current CEO John Bright intends to change his role.

UCS goes back to 1978 and listed in 1998 after acquiring Accsys and Easirun. The dotcom bubble burst in 2000 and since then it’s been strongly focused on the retail sector. Over the past weeks the group reported results for the six-month period to end-March 2011, in which it was revealed its five operational assets that have been sold to BCX showed strong growth and healthy margin expansion.

The group said if you excluded its unprofitable Philadelphia-based UCS Solutions, which was disposed of in August last year, the combined businesses recorded an 11,3% increase in revenues – from R462m to R514m. EBITDA climbed 24%, from R70m to R87m.

As for UCS’s continuing operations, a 12% increase in revenues was gained over the six months, from R170m to R191m. But those units showed a decline in EBITDA of 28%. That was largely due to the impact of its Argility and Cquential operations, which were acquired during the reporting period and remain unprofitable. Losses in those operations included a head count reduction in Argility at a cost of R17m. Overall revenue growth after reductions reached 9,4%.

The delisting of UCS is still being discussed. With Bright stepping down, current deputy CEO Dean Sparrow will take the reins. Sparrow says on-going board discussions will be concluded soon, allowing for more clarity on the delisting in six weeks from time of writing.

Says Sparrow: “We’ve concluded the BCX transaction, leaving UCS with a market cap of around R100m. When you consider the remaining market cap and costs related to the business being listed… it’s difficult to justify.” He adds UCS’s future operations would no longer have the necessary capital requirements of a listed entity. UCS also doesn’t want to be marginalised from an institutional investment perspective or in terms of its competitors – neither of which works well with the transparency required of listed companies, he says.

Of course, Sparrow and his team acknowledge the regulatory issues about delisting and are aware of shareholders who have an interest in remaining involved. The board is currently looking at the offer it will make to shareholders who are required to delist and this will become clearer following the six-week period mentioned above.

KPMG was asked to value UCS’s remaining assets and has established a figure of around R61m – which would relate to about 21c/share. Sparrow suggests if that value is combined with other transactions being concluded, a final figure of around 58c/share would be realistic.

As for Bright, he’ll soon reach UCS’s required retirement age of 65. “But I’m not intending to play golf,” he says. “I’ll still be involved and a shareholder. And as a BCX shareholder I look forward to the results of the consolidation.”
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