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Price fall

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Vince888
Regular Contributor
The recent AdaptIT price decrease is now reaching good buying levels. Looking at buying more. Anyone care to comment.
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18 REPLIES 18
AJ_
Contributor
If core business has not shown growth and growth was only attributable to acquisitions why would you expect price to pick up and why would you want to buy this share.
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Vince888
Regular Contributor
What you mean their core business has not shown growth. All the sectors in which adaptIT operates has shown growth except for the Manufacturing sector. Their HEPS has grown by 55% for the year. This is the 5th consective year that Adapt has managed to increase their earnings. They produced the 2nd highest return last year. More than 300%. Their current return to date for this year is over 40% so far. Aquillion has contributed to just over 70 mil to (from a total of just over 400 mil in revenue) AdaptIT revenue and it was only acquired end of last year. They will be expanding internationally. AdaptIT shares are currently oversold (Check RSI). I bought at a price of R1.97. and adaptIT has an all time high of R9.50.
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SimonPB
Valued Contributor
no, of the R50m profit before tax, R18.8m came from the new acquisition .. meaning they made R31.2m, last year they made R30m .. so pretty much zero organic growth ..
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Vince888
Regular Contributor
Yes, but their NAV has almost doubled
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SimonPB
Valued Contributor
of course it has, but nav is meaningless (abl had nav), it is how much profit you generate from that nav that matters ..
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Not applicable
and how much goodwill is built into it R133m in this case vs 30 mil for the previous financial year - like Simon says, NAV is meaningless
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Vince888
Regular Contributor
Thank you Simon & Skaap. Point taken, but wouldnt the real profit before tax (as a result of the acquisition) truly reflect in the next set of financials?
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Not applicable
well, we all have our own approach when dealing with companies that grow by acquisition. If a company has a PE of 20, and they buy a company with a PE of 20, then the net gain for you as a shareholder is 0 - unless the sum of parts is greater than the whole. Everything depends on their ability to strike a bargain. In AdaptIt's case - I guess the market didn't think they got a bargain. Me personally, I think the whole IT services space is completely overtraded, and the only growth out there is through Acquisition - and really how many companies in the SA economy can there still be left for the likes of AdaptIt to nibble on the crumbs left by EOH, BCX, etc
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Blik
Super Contributor
And if we worked on TNAV?
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Kevin_W
Not applicable
Hi, please excuse my ignorance. When they acquire another company that makes say 10B profit a year does that not mean that the ADI shareholders receive that profit, How can this not be a good thing? are the profits diluted by more new shares or something? I'm learning please bare with me.
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Not applicable
@Blik - there is a documented strategy out there called Piotroski (sp?) which advocates buying companies trading at or close to TNAV. I think it has legs - but it is a lot of work. @kevin, sure, you would participate in the 10bn income stream - but how mu
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Blik
Super Contributor
Shot - will look it up
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SimonPB
Valued Contributor
an when looking at TNAV never forget DON (an others) who traded below TNAV for years, before going bust ..
kevin, to add to the above, we want to organic growth not just acquisition growth
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Vince888
Regular Contributor
But Simon, with the acquisition of acquilion, wouldnt the Profit be 40 million more if AdaptIT did not make the Acquisition. 38 Million was the cost to acquire Aquillion (cash component) plus alloted shares and 2 mil as acquisition expenses as a result of the acquisition. So the Profit would have been 71.2 mil (before the acquisition) profit instead of the 31.2 mil (after the acquisition). All this was reflected in the current financials and the true grouth we would be reflected in the 2015 FY.
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AJ_
Contributor
cost of acquisition of Aquilion was not set off against profits since it is an investment cost. only financial impact on Adapt-It is cash flow
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Vince888
Regular Contributor
Tx AJ. In that case I am defending a losing battle. Nontheless still a long term hold for me however they grow their business.
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SimonPB
Valued Contributor
vince, you right on both points I thinks .. most important is to know when when the battle is lost, respect, most people never do ..
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fressa
Regular Contributor
After a pretty good run with ADI, today I decided to sell my entire holding. I should have taken my profits when it peaked at 950 but thought there would be more upside. The reason for selling is simple, I feel growth will be significantly subdued going forward. I got in early so have enjoyed a significant gain. I guess time will tell if I should have stuck around for the ride, but with the price on a steady decline I figure take my profits and walk away. For those still in ADI and for those who got in at current levels or higher - good luck!
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