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Exodus from JSE technology index continues

By Gugu Lourie

The decision by Gijima, a leading South African software and computer services group, to voluntarily delist from the bourse places the JSE technology index under the spotlight.

Gijima’s delisting leaves only nine stocks on the technology index, which is made up of software and computer services as well as technology hardware and equipment shares.

The technology index could be further depleted if Business Connexion (BCX) is bought by Telkom – a development that would see South Africa’s fastest-growing technology firm removed from the JSE. The R2.7bn deal, first announced nearly a year ago, awaits approval from SA’s competition watchdog.

The transaction is likely to be finalised this year after which Telkom has indicated it will reverse integrate Cybernest into BCX – creating a formidable unlisted standalone technology business.

Last month, technology firm ConvergeNet exited the technology index and remodelled itself as an investment company under the new name Stellar Capital Partners.

Despite the exodus, the technology index, which has created value for investors, has risen 116.6% in the past three years – and 29.9% in the past six months.

At its peak in April 2007, the technology index had 18 listed companies.

Over the years, however, the technology index lost big software and computer services firms including Dimension Data (Didata), which was bought by Japan’s Nippon Telegraph and Telephone (NTT) Corp. In November 2010, Didata ended its 23-year listing history on the JSE.

Other firms left the technology index because they went private or were gobbled up by larger companies. They include Altech, Bytes Technology Group, ERP.COM, Faritec, Infowave, Paracon, Spescom, SquareOne and UCS.

The exodus tells a worrying story of stocks vanishing from the technology index and the JSE.

But not all is well for firms that left the technology index.

For example, Allied Electronics Corporation Limited (Altron), which delisted Altech and the Bytes Technology Group, is not doing well.

Altron, which was founded by Bill Venter in 1965, is in trouble and things are getting worse. The technology firm expects its normalised headline earnings per share to be 55% lower than a year ago. While basic earnings per share – which include various significant impairments – could be as much as 110% lower.

That said, there are still gems on the JSE’s technology index that could offer good returns.

One such gem, Adapt IT, a software and computer services group, listed on the JSE in 1998. So far Adapt IT has delivered good returns for investors as its share prices continues to spike – the stock has risen 24.1% in the past 90 days and seems positioned for more growth through organic growth and acquisitions.

Another firm on the technology index, Datacentrix, is also providing investors with good returns. The company’s shares have risen 22.9% in the past 90 days, and EOH has jumped 42.3% over the same period.

The technology index’s biggest stock Datatec has gone up 10.65% in the past 90 days.

These stars are proof that even when listing remains moribund on the technology index, investors still have quality companies to build a healthy stock portfolio.

End of an era for Gijima

On 4 May, Gijima shares were suspended on the JSE. The technology company will delist from the bourse on 12 May – after 15 years as a listed entity.

However, the technology firm will continue to do business as a private, unlisted business.

Although Gijima’s removal from the JSE will make hardly any difference to the total traded value
of the local bourse, it will somewhat limit investment options in the technology index.

Gijima gained popularity in the stock market by rescuing a technically insolvent AST in 2005.

Robert Gumede, founder of Guma and executive chairman of Gijima
Robert Gumede, founder of Guma and executive chairman of Gijima

It is owned by Robert Gumede, who shot to prominence the same year after he bought 37% of AST.

The company changed its name to GijimaAST.

The company, which is led by its CEO Eileen Wilton, is being delisted to focus on executing its turnaround strategy away from the scrutiny of the market.

In October 2014, the company reported a reduction in net losses for the year to end June to R152m down from last year’s R293m loss.

The firm has already raised R100m through a rights offer underwritten by Gumede’s Guma group of companies.

Explaining the move, Gijima said in a statement: “Given the small remaining free float and the current status of the company’s turnaround which is ongoing, Guma believes it is in the best interest of the company to be held 100% by the Guma entities and to delist, thereby enabling it
to complete the turnaround in an unlisted environment.”

That said, the market will be hoping that Gijima returns to the JSE as a revitalised company and having fulfilled its vision to grow into the rest of Africa, and offering investors more value.

There is a glimmer of hope that maybe SA’s biggest technology firm Didata could also make a comeback on the JSE in the future.

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