Johannesburg - Business Connexion is looking to approach the capital markets to fund further expansion into the rest of Africa as it finds market conditions in its home base in South Africa to be increasingly challenging.
Chief executive Benjamin Mophatlane said yesterday that the company had historically tended to fund its own expansion. “We are looking at long-term debt… hopefully by the end of May we’ll be able to send something to the market,” Mophatlane said.
Dirk Noeth, an analyst at Avior Research, said Business Connexion could absorb about R400 million in debt onto the balance sheet “but the exact leverage would be up to the management team”.
The company lifted revenue 5.5 percent to R3 billion for the six months to February, it reported yesterday.
The local market was saturated particularly in the enterprise segment, which is a key target for Business Connexion.
“While there are still growth opportunities in the SME [small and medium-sized enterprise] space, Business Connexion has found it difficult to scale into this,” Noeth said.
Aslam Dalvi, the investment analyst at Kagiso Asset Management, forecast a challenging trading environment over the near term given Business Connexion’s relatively large exposure to the struggling mining and retail industries.
“Further delays in information technology (IT) spend by corporates and longer capital replacement cycles will continue to negatively impact industry growth,” he said, adding that the South African IT market was relatively mature with growth expected to slow.
“The strategy to grow into Africa is important as it provides access to faster-growing markets and the diversification of revenue streams.”
Mophatlane said over the next five years the company hoped to derive at least 30 percent of its revenues from outside of South Africa.
The company’s international division contributed R314m to group revenue compared with R239.8m during the six months to February last year.
“East and west Africa remain a very key priority for Business Connexion,” Mophatlane said, noting that the firm faced stiff competition from India-based companies.
“A lot of IT infrastructure is still not in place in Nigeria… it’s a very large economy to ignore,” he said, adding that the company would look to acquire businesses in application development and professionals services in future.
Nigeria, where the firm recently bought Panabiz Nigeria – a managed print services provider and Canon distributor – and Kenya are key markets.
Ankit Trivedi, an industry analyst at Frost & Sullivan, said: “Nigerian enterprise customers find it more cost effective to pay for print services, as opposed to infrastructure, as it allows them to pay per use and also saves them from the hassle of maintaining the printing equipment.”
He said Business Connexion had positioned itself as a prominent information and communications technology solutions distributor providing services such as systems integration, outsourcing and software and hardware support across various industry verticals and multiple geographies.
The shares gained 3.64 percent to close at R5.70 yesterday.