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Issue Date: November 2007

Local IT analysis

November 2007

Frost & Sullivan comments on three South African companies.

Client focus lifts Datacentrix
IT services company Datacentrix is realising the benefit of focusing on quality customer service. According to global growth consultancy Frost & Sullivan, Datacentrix is well positioned to continue its good performances in the challenging ICT sector.
The company released its interim results recently, indicating strong performance in all areas of the business. The results showed a 15% increase in revenue and a 53% increase in headline earnings per share.
“Datacentrix’s focus on building strong client relationships and offering superior service has achieved good results, as highlighted by its significant organic growth in infrastructure and similar services,” says Frost & Sullivan ICT research analyst Letticia Nkumbula. “The managed and outsourced services are a growing market in South Africa with high demand coming from the small, medium and micro enterprises (SMMEs).”
Letticia Nkumbula
Letticia Nkumbula
Nkumbula notes that Datacentrix has to meet the constantly changing demands of the ICT sector, which include stiff competition and continuous technology changes.
“Clients are looking for a full range of solutions to effectively solve their business problems,” she says. “Creating innovative services and effectively bringing them to market in time to meet client demands is very challenging.”
Datacentrix has however done well to show high client retention. The company’s empowerment status is also a significant contributing factor to its current and future success.
“The company’s high BEE rating also works in its favour to secure some of the growing number of business opportunities coming from the government sector,” Nkumbula says. “With many ICT projects taking place in the government sector, Datacetrix stands a better chance to expand its revenue.”
Bytes pursuing acquisitions and investments
Bytes Technology Group’s international presence and vigorous campaign in building a strong portfolio of companies is helping it to achieve compelling results in many areas of its business operations. The global growth consulting company Frost & Sullivan believes that Bytes’ should continue to take advantage of the growing opportunities in the African ICT sector through its diversified offerings.
Bytes released its interim results recently, showing an increase in headline earnings per share of 12%. New acquisitions during the period contributed R43 million to revenue, and 46% of the group’s revenue was contributed by international operations.
“Bytes Technology Group has achieved growth in several areas of its business, including the group’s integration and managed services,” says Frost & Sullivan ICT research analyst Letticia Nkumbula. “The company has continued with its vigorous campaign in acquisitions and investments. This is an excellent strategy as BTG can take advantage of its market positioning by grabbing opportunities presented from its diversified business operations.”
The company’s strong cash flow enables it to make strategic acquisitions that not only increase its skills base, but also modify risk in the competitive ICT market.
“Acquisitions and investments are important in diversifying risk,” notes Nkumbula. “Bytes’ portfolio of companies resulted in some high performing areas of the business offsetting those that underperformed.”
Frost & Sullivan believes that Bytes is strategically positioned to take advantage of economic development in Africa as there are currently many ICT projects taking place on continent within the companies' areas of expertise.
“Calls to have technology made available to the under-serviced areas on the continent are increasing with many projects already taking root,” Nkumbula says. “Bytes’ investments in African market presents a healthy opportunity to increase its revenue stream.”
Square One well positioned for future growth
IT services group, Square One Solutions, is displaying innovative ways of overcoming some of the challenges associated with operating in the South African IT market. Global growth consultancy Frost & Sullivan believes that the company is strongly positioned to grow its profitability.
Square One released its interim results recently, showing headline earnings of R2.3 million, which is in line with last year. The past six months saw the group engage in a restructuring aimed at securing higher gross margins through diversifying into a services and annuity based business.
“Square One Solutions has initialised a process that will result in a change of business focus to an annuity-based business,” notes Frost & Sullivan ICT industry analyst Lindsey McDonald. “While this has led to some expenditure and slightly lower earnings, it is a key investment for the company’s future.”
McDonald believes that the group’s integration of network services company NETIntellect will show benefits quickly, not only in earnings but also in broadening Square One’s offering.
Lindsey McDonald
Lindsey McDonald
“Square One’s consistent focus on its core competencies has meant that it offers clients ‘best-of-breed’ services in all its areas of operation,” she says. “In instances where the company has sought to grow its service offering portfolio, it has acquired the necessary skills.”
In a sector facing difficulties in ­securing specialised skills, Frost & Sullivan believes that Square One’s model is a sound one.
“One of the greatest challenges to this market is the shortage of specialised skills currently available in the South African IT market,” McDonald notes. “Personnel with the required skills are difficult to source and often expensive to retain, so companies have to establish innovative revenue models to offset this challenge. Square One has overcome this by moving its business to an annuity based model and through the acquisition of companies that broaden its skills base.
“In addition, the clever positioning of the company towards the mid-capitalised market sector means that it is perfectly suited to offer services to medium and large companies as well as catering for the burgeoning SMME sector.”
With the SMME sector set to continue growing at unprecedented rates in South Africa, Square One’s ability to offer scalable solutions into this market will be a key area of growth.

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