Over the past year, the Altech group has enjoyed the benefits of maintaining a positive outlook despite a tough economic environment. The group has continued to look for opportunities, making notable acquisitions and increasing its presence in the lucrative East African region.
Altech released results for the year ended 28 February 2010 today, revealing stable revenues and a 7% increase in operating income to R933 million, up from R874-million last year. Although group operating margins were up to 10,1% from 9,5% in 2009, foreign currency translations impacted on earnings. While basic earnings per share were 5,6% lower at 536 cents per share, adjusted headline earnings per share improved to 605 cents per share from 592 cents per share in 2009.
"Altech is continuing to deliver the strong results and positive growth that investors have come to expect from the company.," says Frost & Sullivan ICT industry analyst Protea Hirschel. "Astute investments in East Africa have already paid off handsomely for the company and continue to do so. This includes increasing its share in Kenya Data Networks (KDN), which is the largest data network provider in Kenya and supplies backhaul infrastructure to Safaricom and Zain."
More recently, Altech has purchased capacity in the Seacom cable. This gives it access to international bandwidth from two cables – Seacom and TEAMS.
"The submarine cables complement Altech's investment in terrestrial fibre networks in East Africa," Hirschel says. "On the one hand this allows Altech to offer wholesale bandwidth at competitive prices in Kenya. On the other hand, it allows Altech to expand further into markets in Uganda, Rwanda and Tanzania."
Frost & Sullivan expects the contribution of the East African businesses to Altech's overall revenue and operating profit to continue to increase. This is due to data and other telecommunication services becoming cheaper for end users, spurring uptake in these markets.
Although Altech's East African investments are realising strong growth, Altech's income from its South African telecommunications subsidiaries should not be disregarded. While these have been impacted by declining growth rates for all the major telecommunications companies, the company has placed emphasis on cost control and a strategic commitment to increasing annuity income.
"As a provider to telecommunications operators in South and East Africa, Altech is dependent to an extent on the fortunes of these companies," Hirschel notes. "In South Africa, mobile operators have experienced declining growth rates as the telecommunications market has become more competitive. Increasing competitiveness is also already evident in South Africa's growing broadband market."
In contrast, East Africa is projected to show high growth rates for both mobile and broadband subscribers. For Kenya alone, Frost & Sullivan predicts a compound annual growth rate (CAGR) of 17,6% in mobile revenues to 2015 and a CAGR of 24,9% in broadband revenues to 2016.
"With 8.6 million internet subscribers in Kenya already, this market is the most developed in East Africa in terms of data services," Hirschel explains. "Growth rates in Uganda are expected to be similar to Kenya's, whereas Tanzania is growing off a much lower base."
Hirschel predicts that East Africa will continue to be a growth area for Altech in the medium-term as cheaper bandwidth prices drive the broadband market. Growth in South Africa is likely to come from niche areas such as targeting gated communities and increasing emphasis on convergence.
"Although Altech's NamITech already offers pre-paid services to mobile operators in West Africa, further expansion of the company's carrier services into West Africa, and Nigeria in particular, is also a potential next move for Altech," Hirschel says. "While the business environment is different to both East and South Africa, and some South African telecommunications companies, with the exception of MTN, have struggled to elicit the expected returns, Altech could replicate the successes of NamITech through investments in submarine cables in the region."
Altech declared an ordinary dividend of 339 cents per share, a 5% increase on last year.