Mustek eyes new product lines for growth as the company delivers strong interims

JSE-listed technology group Mustek is weighing up new product lines for growth as it said yesterday that it had delivered a strong interim trading performance on the back of the new normal: working from home and remote learning. Photo: ANA

JSE-listed technology group Mustek is weighing up new product lines for growth as it said yesterday that it had delivered a strong interim trading performance on the back of the new normal: working from home and remote learning. Photo: ANA

Published Mar 3, 2022

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JSE-listed technology group Mustek is weighing up new product lines for growth as it said yesterday that it had delivered a strong interim trading performance on the back of the new normal: working from home and remote learning.

The company, with a market cap of R895.5 billion, did not deliver a dividend.

Small cap Mustek’s shares leapt 3.33 percent in mid-morning trade to R15.19, up a a stellar 72 percent in three years.

Founded by David Kan in 1987, Mustek comprises Mustek, Rectron and Mecer Inter-Ed, a controlling shareholding in Palladium, shareholdings in Sizwe Africa IT Group and Khauleza IT Solutions, and a substantial shareholding in Yangtze Optics Africa Cable.

For the six months ended December 31, 2021, its headline earnings, a key profit measure for South African firms, increased 8 percent to R153 million, while its headline earnings per share gained 17.3 percent to 237.09 cents, with revenue of R4.19bn, up 12.5 percent.

Mustek and Rectron grew their revenue by 16.1 percent and 11.1 percent, respectively. Mustek noted that its information technology training company, Mecer Inter-Ed, was starting to contribute to the group’s bottom line with revenue of R44m from R21.3m in the prior comparative reporting period.

“Our diversified portfolio of carefully chosen products and services is providing a clear advantage in the marketplace,” it said.

Its portfolio consists of its Mecer brand of computing equipment and a broad range of top-tier ICT brands, including Acer, Mecer and Lenovo, among others, aimed at addressing every level of the technology stack.

The gross profit margin increased to 16.2 percent mainly on the back of the increased demand for the group’s products and worldwide supply shortages.

Mustek said supply shortages had created strong pricing power and it expected this situation to continue into 2023.

Also assisting the higher gross profit margin was the weaker rand to dollar exchange rate, but its benefit was offset by foreign currency losses due to the increased rand value of foreign payables.

Mustek operates in South Africa, with anchor operations in Africa in Zimbabwe, Kenya and Nigeria.

The firm generated strong cash flows with R283.8m cash generated in contrast to R113.5m cash used in the prior comparative reporting period.

It has a current net asset value of 2 259c, with its price to earnings at 3.33 and a dividend yield of 6.12 percent.

Mustek, which embarked on an aggressive share buyback programme after its shareholders gave it a green light at its annual general meeting on November 29, 2021, said the repurchase of its shares would continue to be considered by its board in line with an evaluation of current and future funding requirements in the year to June 30, 2022.

It said any shares purchased would be cancelled and delisted.

So far Mustek has acquired 5 million ordinary shares of its issued share capital on the open market for a purchase consideration of R66 612 154, a process started on September 17, 2021. Mustek has 61 million shares in issue.

The effect of a buyback is to reduce the number of outstanding shares on the market, which increases the ownership stake of the stakeholders. There is market speculation that the firm could consider delisting from the JSE.

Looking ahead, Mustek said it was confident that the work and learn-from-home reality was more than a passing trend.

“Employees have experienced the benefits of remote working and we feel that flexibility in this regard is likely to stay. This has created and continues building a valuable new customer base for our business,” it said.

However, it flagged that the computer component supply chain remained constrained globally and it anticipated this continuing into 2023.

“Although these global shortages will normalise at some point in the future, we do expect the demand to remain buoyant. We see the current supply chain dynamics as positive for the group,” it said.

Mustek said it continued to invest in new product lines and was evaluating additional offerings to better use its infrastructure and to benefit from economies of scale.

“The device market size is increasing, which bodes well for future replacement cycles. In addition, this is driving the demand for new infrastructure to support these devices. This is likely to accelerate the growth of the ICT industry over the coming years,” it forecast.

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