Bytes Technology sells off on strong results

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You're listening to the MoneywebNOW podcast series with Simon Brown.

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Live streamed every weekday at 6:30 a.m. Wednesday, 14 October, Chinese export data released a few hours ago, year on year, plus 36.3 percent. I'm Simon Brown, coming at you live and loud from the Moneyweb Studios, Houghton Johannesburg, on the show today, Zamele Mabundra from FNB Wealth and Investments. Bytes Technology results. I thought the numbers weren't bad. I thought the CyberOne acquisition looked good. The stock got sold off aggressively. Market disagreed. We're chatting with Imri Nagi. He's the CEO of Independent Regulatory Board for auditors, auditing profession locally, whether it's fit for the future. And then we're chatting with Citadel Fiduciary, proposed changes to laws around trusts that could put pressure on an already struggling master of the high court.

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Benisi N'Glovo (2:12)

MoneywebNOW, on the money.

Simon Brown (2:15)

Also available on podcast. Chatting now with Zemeli Mabundra. Here, of course, FMB Wealth and Investments. Zemeli, I appreciate the morning time. Bytes Technology, the stock has been in a bit of a run, and maybe that was some of what the market was commenting on. But when the numbers came out ahead of open yesterday morning, I mean, on the surface, not bad. Revenue up almost 19%.

The operating profit dropping to only 6.6, earnings down to 6.1, and dividend up only 3.1%.

Also, acquisition of a cyber business. Your thoughts on the numbers and the market response?

Zamele Mabundra (2:50)

Morning, Simon. Yeah, definitely, as I said in the beginning, I also saw the numbers and I thought they were pretty good. And the acquisition as well of CyberOne, it seems a strategic fit, pretty much operating in a similar environment.

Even though CyberOne is mostly, well, they mostly focus on cyber security, which Bytes Technology is also playing in that ecosystem, and it sort of removes the need for that middleman or third-party services, so they can have their own in-house expertise in that respect. So CyberOne, definitely a strategic fit. Also, they upgraded full-year guidance for cross-profit and operating profit. So, I mean, yeah, I mean, when you see the stock selling off, I think for the most part, as we touched on, the market probably was reacting to the softer cross-profit, I mean, operating profit growth, so the operating leverage there was a bit in question. And I think part of that is because of this restructuring that they've been doing over the last two years where they've been trying to focus more on having sector experts, they've been rearranging or sort of reorganize their sales force, and they've also been increasing headcount as far as technical expertise, which can be quite expensive in the tech space. That has sort of pressured margins, particularly the operating margins, and management expects that to sort of carry on for the rest of the year. However, they said going from FY28 and beyond, that would have sort of normalized, and they will start to see margin expansion. So maybe the market isn't really, maybe is a bit worried about that. And also, I think the CyberOne acquisition also, they are some contingent payments as well as it relates to payments. So that might also, I mean, it's not that expensive because they have a very strong cash position. They don't have it.

But they are some contingent payments. So that might sort of hide some cash from time to time. I don't think it would be a major thing. But also as you touched on, that the stock price had rally somewhat, since the beginning of the year, I think they were up around 26, 27 percent. So maybe some profit taking there as well.

Simon Brown (5:11)

Yeah, it has run, as you said, I mean, it now slapped to 100 But also, I mean, they are Microsoft partner, and we can shrug our shoulders and hate on Microsoft. But I mean, it remains the dominant operating system. They're not that many partners globally.