Africa offers growth opportunities for SA tech companies

Africa offers growth opportunities for SA tech companies

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TOMORROW is Africa Day, a good day to reflect on the many opportunities for digital technology offered by the continent's vast and under-serviced people.

It is true Africa has many challenges that have forced local companies to revoke their continental expansion plans. Stark inequality, high unemployment, social and political instability, regulatory uncertainty, low literacy and skills development and crippling infrastructure are just some of those challenges.

But the continent, where more than 60 percent of its 1.2 billion people are below the age of 25, also presents some unique opportunities, particularly for digital technology adoption.

Its young people are early adopters of new tech, for instance, as evidenced by the rapid growth of mobile money in some African countries.

Old Mutual Wealth Private Client Securities research analyst Tasneem Samodien said last week South African companies were in a good position to complement their offerings with that of global companies like Facebook, Amazon, and Microsoft on the continent, rather than trying to compete with them.

She said South African companies such as Altron, Vodacom, MTN, Telkom and Datatec, which each have an understanding of the dynamics of doing business in Africa, stood to benefit from the development of Africa's ICT industry.

She cited Altron, which operates in 22 other African countries, as an example, and which offers “Amazon” like digital services such as data preparation and governance, algorithm training, AI development and deployment, and skills training.

Altron collaborates with Amazon Web Services, Microsoft, Cisco, and many other global technology companies. Altron's share price rose 0.26 percent to R11.58 on Friday morning, almost double the R6.15 it traded at fives years before, but still 20 percent below the R14 it was trading at three years ago. It closed at R11.76.

The price reflects my view that Africa, despite its opportunities, remains a longer term play for investors.

Datatec, the ICT group that operates in some 50 countries across six continents, saw its fastest growth in revenue from its Africa and Middle East operations from its 2019 to 2020 financial years, with the contribution rising from eight percent to 10 percent.

The low contribution to turnover, compared with for instance 46 percent of revenue coming from Europe in 2020, means Datatec has barely scratched the market's surface in Africa.

Datatec's share price was 0.03 percent up at R29.33 on Friday morning, 30 percent up from R22.54 three years ago, but also well down from R44.50 five years ago. It closed at R29.50.

Telkom, which is seeing strong growth in mobile services income in South Africa, expects a sizeable surge in earnings when its results for the year to end-March 31 are reported today.

Perhaps it could use the opportunity of better results to broaden its horizons for longer term growth outside the heavily traded and fiercely competitive South African market.

Its share price was up 1.26 percent to R41.77 on Friday, well below the R54.24 price three years ago and the R55 the share traded at five years ago. Telkom shares closed at R42.25.

MTN Group, which provides voice, data, mobile financial services and digital products, continues to perform well operationally in South Africa and in the 21 countries it operates in Africa and Middle East, but its share price performance is lacklustre.

Its share price was up 1.3 percent to R96 on Friday morning, well down from R117.61 three years ago and R125.82 five years ago. It closed at R95.

Its forward price:earnings ratio is relatively low at 11.75, compared with the JSE average of around 14, which should indicate good value for investors, despite the ongoing economic ravages of Covid-19.

Vodacom's price:earning ratio is at the same level as MTN.

Apart from South Africa, Vodacom operates networks in Tanzania, Democratic Republic of the Congo, Mozambique, and Lesotho, and provides business services in over 32 African countries such as Nigeria, Zambia, Angola, Kenya, Ghana, Côte d'Ivoire, and Cameroon.

Vodacom's shares were 0.57 percent higher to R127.77 on Friday morning, 23 percent below its price five years ago. They closed at R125.85.

Covid-19 aside, it is clear the African technology investment renaissance is still some way off.

Edward West is a senior multimedia journalist at The Business Report

[email protected]

BUSINESS REPORT



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