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F&S: Faritec headed in right direction

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Faritec's flexible and proactive approach to the market should stand it in good stead for the future, says Frost & Sullivan, but the success of virtualisation in the market will be key.

The consulting group says that Faritec announced last month that it intends becoming the African leader in virtualisation and it believes that Faritec’s approach to taking this proposition to market will determine how much it can take advantage of this trend.
The IT services company released its annual results yesterday, showing revenue up by 21%, with particularly good growth in the second half of the year. The company also showed an increase in gross margin from 22,6% to 24,9%.
“The last year has been quite a tough one for Faritec, with the company share losing more than 67% of its value,” says Frost & Sullivan analyst Lindsey McDonald. “Market conditions have certainly been difficult and the impacts of the economic slowdown have been felt even in the IT sector. These conditions were expected by the company’s directors, however, and plans were put in place to address the awaited challenges.”
The company has branched out into new areas, one of which is the highly topical sphere of virtualisation, McDonald says. Faritec also concluded important deals in the South African financial services, telecommunications and government sectors, demonstrating its ability to meet the requirements of diverse customers. It also enjoyed first mover advantage, becoming the first African company to offer Google Enterprise Solutions.
“Faritec’s growth and acquisition strategy proved costly in the last year or two, but the company made the correct decision by embarking on this process,” McDonald says. “The next year ahead should be one in which the positive impacts of properly bedding down these acquisitions will be felt. The company’s public commitment to virtualisation and its partnership with global leader Google should assist it in achieving competitive advantage.”
Faritec also recently announced that it will raise R100-million from investors in the capital markets in a long-term debtors’ securitisation programme and that it has concluded an agreement to acquire the business of Ubusha and its 30% stake in Linux System Dynamics.
“These moves by Faritec to ensure cost-effective financing will put the company in a far more stable condition going forward,” McDonald says. “While some may think that another acquisition is perhaps too early, it is in fact a great move by the company. It will now be positioned as an expert in the access and identity management field, which will complement its existing services.”
Mc Donald suggests that, despite the challenging market in which the company finds itself, Faritec’s flexible and proactive approach to the market should stand it in good stead. If the company is able to demystify virtualisation and effectively communicate its value proposition, there are definitely opportunities in this new service line.
“The challenges facing Faritec are characteristic of the South African IT industry at present,” McDonald says. “Clients have less available budget, but maintain their high levels of demand for advanced solutions.”
Frost & Sullivan anticipates that over the next 12 months, Faritec will enjoy further growth into the rest of Africa, as well as further customer acquisition in South Africa. Mc Donald says it will be interesting to see market reaction to the share, as she believes the company is not currently as favourably perceived as it should be.