Alaris Holdings has achieved something special – it has doubled its share price since the lockdown started despite the gloomy economic outlook.
Alaris is a global leader in antenna technology, with a strong presence in the Americas, Europe, the Middle East, and Africa.
Although Alaris is one of South Africa’s biggest technology success stories, it has been trading at a big discount for many years.
The company has been listed on the JSE’s AltX exchange for over a decade and achieves healthy margins, but its share price did not reflect its financial performance.
One of the reasons is its obscurity. Alaris was born out of Poynting, which was a popular small-cap stock until former CEO Andre Fourie bought the commercial business and brand in 2016.
The defence division of Poynting was rebranded as Alaris, but the excitement around Poynting was lost and its share price performance has been poor ever since.
Fourie, who is still a large shareholder in Alaris, said the brand was not adequately communicated to South Africa’s small investors.
“The confidence, excitement and belief in the Poynting share brand did not transfer to Alaris,” said Fourie.
He said many investors only noticed that Poynting was no longer listed and were not aware that the most exciting part of the business, Alaris, remained listed.
Another challenge is that Alaris is a micro-cap company which until recently had a market cap of less than R250 million.
It therefore did not attract attention from business journalists and institutional investors who mainly focus on large companies.
Without good coverage in prominent business publications, retail investors are not aware of Alaris and its success.
Alaris’s financial performance
Alaris Holdings recently released its financial results for the six months ended 31 December 2020, which showed strong growth.
Revenue increased by 60% from R85 million to R136 million and profit after tax increased by 260% from R6.4 million to R23.1 million.
This impressive performance still did not move Alaris’s share price, which prompted Fourie to write an opinion piece out of frustration.
He said Alaris had 28% compound revenue growth from 2013 to 2018 and 31% growth in profit after tax (PAT) for the same period.
“Certainly, it is remarkable given that the growth is quite consistent and never faltered on a year-on-year basis,” said Fourie.
The company also has a strong balance sheet with R82 million in cash and virtually no long-term liabilities or other debt.
It boasts healthy margins, with gross margins of around 70% and profit before tax of 22% of turnover.
It has a client base of global multi-billion-dollar military system integrators and very sticky products, which protects its future revenue streams.
Despite its strong financial performance and excellent assets, Alaris’s share price decreased by 60% from R4.20 in 2014 to R1.60 in May 2020.
The charts below provide an overview of Alaris’s revenue and profit growth over the past few years.
Share price jump
In his article on 29 June, Fourie proposed a few interventions to improve shareholder value:
- A share buyback programme instead of a dividend declaration.
- Listing internationally as defence companies in the US and Europe are not undervalued.
- Finding an international strategic buyer who may be prepared to acquire Alaris at a PE in excess of 15.
- Limiting acquisitions in preference of buying back Alaris shares.
Fourie’s letter seemed to have sparked the excitement in Alaris, and over the next few weeks, the share price more than doubled.
Alaris’s share price increased from R1.60 in May 2020 to R4.00 per share on 30 July 2020. This means the company’s market cap exceeded R500 million.
This puts Alaris in the special position of more than doubling its share price at a time when most other companies are trading at much lower levels than the beginning of the year.
The chart below shows Alaris’s share price since the beginning of the year.