SIMON BROWN: I’m speaking with Dr Adrian Saville, the CEO at Cannon Asset Managers. Adrian, good morning. I appreciate your time. On Monday Altron collapsed the share price. Everyone was saying, “What’s happened?” But they’d spun out Bytes UK, which comes next week to the JSE. What is left within Altron without Bytes UK? And is it a potentially investible business that remains?
ADRIAN SAVILLE: Good morning. The long story of Altron, of course is known to investors who have followed the JSE, over not years but decades, as an asset-heavy business. It’s an old electronics and engineering and equipment business and Altron today has been migrated to what we might colloquially call a ‘cloud business’, in that a lot of the old traditional assets have been sold off, and this much-lightened balance sheet really represents an entirely different business.
To answer your question, what sits at the heart of Altron today is Netstar, the tracking business.
SIMON BROWN: And it is. I remember this was the Venter family, and this has been a really, sort of spectacular turnaround in the last couple of years. A lot of turnarounds take a very long time and oftentimes just don’t work. This really did work.
Netstar’s car-tracking is a fairly competitive business; I imagine there is also a fair bit of demand. But again it’s also one of those very tech-driven businesses . They really have pivoted from the old industrial into the sort of new reality in many senses.
ADRIAN SAVILLE: I think a couple of aspects about Netstar that give a degree of comfort are that it’s a highly fragmented or disaggregated base of customers; that it is principally private sector rather than public sector; that it’s contract-based. So it’s an annuity business, which means you’re not trying to win business every month by landing a new contract or a new agreement; rather, you’ve got reasonable visibility.
Just listening to your last interview, you’ve got reasonable visibility over the earnings, and the earnings are not accounting earnings; they are cashflow earnings.
So you’ve got a really granular, relatively reliable and repeatable revenue line, which just makes that much more of an investment case in this environment where, generally, earnings have very poor visibility and cash is king of the castle.
That’s the rump of Altron. And, as you point out, it has been an extremely successful turnaround story. When the business was taken into this turnaround strategy with the buyer, Mteto Nyati, the former CEO of Africa at MTN, it was debt-distressed, [with] very old businesses, poor visibility, [and] lumpy earnings. And he took a strained balance sheet and has turned it around. And then the most recent – I would even venture spectacular – iteration has been the unbundling of Bytes.
SIMON BROWN: I’m looking at the shape. Even post the Bytes unbundling, that share in the last five years is up. It has doubled in price, and it’s been absolutely spectacular.
Let’s touch on Bytes. Bytes, obviously in the UK, is again asset-light: it’s software, it’s security, it’s cloud services, and it’s listing next week. Is Bytes an attractive investment? Is it something that you and your team at Cannon are looking at?
ADRIAN SAVILLE: Simon … if you take the business model it’s everything that markets have fallen in love with in recent times. It’s the stuff in the cloud, and its services in software and systems, data-rich and hard-currency based. It ticks so many boxes from an investment aspect. And, in fact, what really pulled us into Altron from an investment perspective was the way we assessed the investment: if you were buying this a year or 18 months ago you were essentially getting Bytes technology in the unbundling, and the rest of the Alton business you were going to get for free.
So, even applying very conservative numbers to Bytes, I think it makes a strong case.
Earnings are running ahead at a fair clip. It’s hard-currency based. And, if we apply valuations from the UK market, I think you can get to a fairly healthy set of numbers.
And what also appeals to us is that Bytes is a well-known business. It used to be listed on the JSE, and then it was acquired into Altron and for many years has sat inside the group, essentially unrecognised as an asset.
What we see today is an unbundling that’s worth more than the entire market cap of a few months back.
SIMON BROWN: It absolutely is. It lists next week, Thursday. The code will be BYI. That was Dr Adrian Saville, CEO at Cannon Asset Managers. I appreciate your early morning time, Adrian.