An analyst predicts AST Group will achieve bottom line profitability come June next year, despite net losses being suffered for the previous three financial years.
Yesterday AST released its results for the six months to 31 December, showing that the group reduced its net loss and reached headline profitability.
"I was a bit disappointed from a revenue point of view, expecting like-for-like growth, but they were suffering a competitive disadvantage by having a weak balance sheet and a lack of BEE [black economic empowerment] credentials," says an analyst.
IT spending in the manufacturing and mining sectors has also been pulled back, and this affects AST, as it is the dominant player in these sectors, he says.
"However, things are not looking bad and we must take note that AST is a significant player in the IT services market, being among the top six companies," he adds.
The recent merger with Gijima Technologies has boosted AST`s black empowerment credentials. The group plans to begin trading on the JSE under the name of Gijima AST Group from 22 April.
AST has predicted a double-digit EBITDA (earnings before interest, tax, depreciation and amortisation) margin. The analyst says this is a tall order but cannot see why it will not reach an EBITDA margin of 9%-9.5%, while the operating margin prediction of 6%-7% is par for the course.
He says bottom line profitability should come through in the results for the year to 30 June 2006 as there is no more goodwill amortisation and hopefully no more impairment costs.
Another analyst comments that AST will face challenges on its road to recovery, which will not be easy as other competitors are in better shape.
The AST share price closed at 75c yesterday, up 5c or 7.1% from the previous day`s close. Volumes were relatively high as 1.2 million shares changed hands.
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