Altron — Keeping Altron Document Solutions

Altron (JSE: AEL)

Last close As at 07/08/2024

ZAR15.90

−0.36 (−2.21%)

Market capitalisation

ZAR6,542m

More on this equity

Research: TMT

Altron — Keeping Altron Document Solutions

Altron’s AGM trading update confirmed that the positive momentum seen in H224 has continued so far in H125. The company also announced that it had decided to stop the sale process for Altron Document Solutions (ADS) and bring the business back into continuing operations within the IT Services segment. We maintain our forecasts pending further clarity on ADS financials, noting that the business returned to profitability in H224 and is self-funding.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Altron

Keeping Altron Document Solutions

AGM trading update

Software and comp services

7 August 2024

Price

ZAR16.26

Market cap

ZAR6.2bn

Net debt (ZARm) at end FY24

313

Shares in issue

379.9m

Free float

35.7%

Code

AEL

Primary exchange

JSE

Secondary exchange

N/A

Share price performance

Business description

Altron is a South African provider of platforms and IT services. The company operates via three divisions: IT Services, Platforms and Altron Arrow. In FY24, 89% of revenue was generated in South Africa and annuity revenue made up 60% of total revenue.

Analyst

Katherine Thompson

+44 (0)20 3077 5700

Altron is a research client of Edison Investment Research Limited

Altron’s AGM trading update confirmed that the positive momentum seen in H224 has continued so far in H125. The company also announced that it had decided to stop the sale process for Altron Document Solutions (ADS) and bring the business back into continuing operations within the IT Services segment. We maintain our forecasts pending further clarity on ADS financials, noting that the business returned to profitability in H224 and is self-funding.

Year end

Revenue* (ZARm)

PBT**
(ZARm)

Diluted EPS**
(ZAR)

HEPS*** (ZAR)

DPS
(ZAR)

P/E
(x)

Yield
(%)

02/23

8,445

482

0.88

0.85

0.35

18.5

2.2%

02/24

8,250

634

1.15

1.16

0.58

14.2

3.6%

02/25e

8,404

725

1.31

1.29

0.63

12.4

3.9%

02/26e

9,076

871

1.57

1.59

0.77

10.3

4.8%

Note: *Continuing operations. **PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items, and are for continuing operations. ***Basic continuing headline EPS.

Altron’s AGM update on 31 July provided an update on trading by division as well as announcing that it had decided to keep ADS and move it back into continuing operations. ADS provides print solutions and digital document management services across South Africa, sub-Saharan Africa and the Indian Ocean islands, and is the largest Xerox distributor globally. ADS has been classified as held for sale since FY21 and the company has been through a lengthy process to find a buyer. Offers under consideration did not reach the value that management believes is fair and carried execution risk. Under the management of Warren Mande since May 2023, ADS returned to EBITDA and operating profitability in H224 (ZAR53m) and is self-financing from a cash perspective. Management believes that removing the ‘for sale’ sign should provide a confidence boost for existing and potential customers. The shift from discontinued to continuing operations will require accounting review and retrospective restatement; we therefore leave ADS within discontinued operations until further detail is available. We estimate that ADS’s contribution to continuing operations net income is likely to be relatively neutral in the near term. We have attributed no value to ADS in our sum-of-parts valuation and we note that book value, before a ZAR381m intercompany loan, was ZAR504m at the end of FY24.

Separately, Altron noted that for continuing operations, the positive momentum seen in H224 has continued and year-to-date (ytd) performance is stronger yearon-year. It expects EPS and HEPS, continuing (with or without ADS) and group, for H125 to be at least 20% higher year-on-year. The Own Platforms segment has seen a strong performance ytd, with all three businesses growing revenue, EBITDA and operating profit. Within the IT Services segment, Altron Digital Business delivered ytd revenue growth in line with the market but profitability was suppressed by one-off costs on historical projects and delays in some newer projects. Altron Security has seen some benefit from the corrective actions taken in H224. Altron Arrow saw weaker revenue, as expected, but continues to target a flat operating margin for FY25.

General disclaimer and copyright

This report has been commissioned by Altron and prepared and issued by Edison, in consideration of a fee payable by Altron. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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New Zealand

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United Kingdom

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Altron and prepared and issued by Edison, in consideration of a fee payable by Altron. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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