Altron is in a “value unlock” phase of its life. The best indicator of this is when a company has a “2.0” strategy. You only have such a strategy when the 1.0 version of yourself wasn’t terribly popular.
Altron unbundled Bytes at the end of 2020 and the divergence in share price performance has been breathtaking, with Bytes as a strong performer and Altron as a significant disappointment for shareholders. I was a shareholder at the time of the unbundling as I had bought into the turnaround plan, so I’ve seen the divergence of the stocks in my own portfolio.
While Bytes is busy blazing a trail in the UK market, Altron is trying to focus on its core ICT businesses, so anything outside of that strategy needs to be sold off if the company can get a decent price.
The latest news is that Altron Document Solutions (ADS) is being sold to Xerotech, a subsidiary of Bi-Africa Investment Holdings. The deal includes ADS’ subsidiary in the Eastern Cape, Genbiz.
This is an office printer business that has been a strategic partner for Xerox in the sub-Saharan Africa region. The business also distributes other printing-related equipment. This is a capital-intensive model that is not a good fit with Altron’s core operating model.
The ADS business (excluding working capital) has been valued at R20.1 million for this transaction. There’s a debtors’ balance of R346 million which will be collected by Xerotech and paid across to Altron. The inventory balance of R316 million is a bit more complicated, as 49% of it is considered “not slow moving” and will be paid off to Altron over three months, with the rest paid when sold at the lower of cost or 90% of net realisable value as at the effective date. The various liabilities in the business will be settled by Altron (R191 million as at 31 August 2021).
Genbiz is much simpler. The value for the 57.7% stake has been valued at R14.6 million. There’s also a shareholder loan from Altron of R9.9 million that will be repaid in four monthly instalments.
There are also amounts payable for the book values of computer equipment etc. The total price for the deal has been capped at R715 million (the amounts disclosed above are R706.6 million in total).
Altron’s net cash inflow will be somewhere around R520 million after settling the liabilities. The net book value of the business at 31 August 2021 was R538 million, so the deal has effectively been done at nearly net book value. The net cash will be used to reduce Altron’s debt.
For the six months to August 2021, ADS (including Genbiz) generated interim revenue of R500.1 million, EBITDA of R5.2 million, operating profit of R0.4 million and an attributable loss after tax of R11.2 million.
The deal will close by 31 May, with a few operational hurdles to clear along the way
As an Altron shareholder, I’m very happy to see this business go out the door. Anything with an EBITDA margin of 1% isn’t something I want to own.
Disclaimer: I hold shares in Altron
