Huge appetite eclipses earnings forecast

MAIDEN results from acquisition-hungry Huge Group showed it exceeded its prelisting forecast of headline earnings per share by 169%, with the benefits of two recent acquisitions yet to have their full effect on the bottom line.

The managed telecommunications company listed on AltX last year, and predicted earnings of 16,42c per share. Yesterday it posted earnings of 44,17c, and declared a 12c dividend, triggering a 9,3% rise in its share price, which gained 35c to touch 410c. Revenue came in at R243m for the year to February.

Huge claims an 18% share of the market for managed telecoms services, and has set itself ambitious goals. Much of its growth should come from a planned R511m takeover of iTalk Cellular, a Durban-based reseller of MTN airtime. However, MTN holds 41% of iTalk and may exercise a pre-emptive right to acquire the 59% that Huge has already agreed to buy. MTN originally waived its right to buy the shares but was now trying to re-enforce that right.

However, CEO Anton Potgieter said the chance of losing out to MTN was “very slim” as MTN was unlikely to win competition authority approval to absorb one of the few remaining independent resellers, particularly since MTN was likely to lay off iTalk’s 235 staff.

The Competition Tribunal recently criticised Vodacom for its stealth practice of wiping out independent resellers bit by bit. MTN was unlikely to risk a similar long and possibly abortive process, Potgieter said. “It’s been such a game of poker that it’s hard to know how hard MTN will try to push it, but I believe we have the moral and legal high ground,” he said.

If Huge acquires iTalk, the group’s profile would change from serving only corporate clients to generating 50% of its business from consumers, in a move diversifying risk.

iTalk serves only 2% of SA’s cellphone users and runs only 1% of the retail outlets. As it is so small there was plenty of room to grow, Potgieter said. “iTalk is key to our growth strategy, and we think it’s possible to increase their revenue by 35% a year.”

The acquisition would also create cross-selling opportunities, as corporate clients often asked Huge for handsets as well as other services. With iTalk in its stable it could do that.

Huge earns R47m a month in annuity income from 10000 corporate clients. It expects to turn over R640m this financial year. It could top R700m, but it would turn down work if profit margins were too slim. In the coming year, Huge was chasing an after-tax profit of R71,2m and headline earnings per share of 66,77c, Potgieter said.

Yesterday’s results show only one month’s contribution from taking over telecoms provider CentraCell and no effect from buying 25% of a start-up, Eyeballs Mobile Advertising.

Potgieter said buying CentraCell created critical mass and boosted its power to negotiate discounts from operators for routing calls over their networks. It earns discounts of 20% and is aiming for up to 29%.

Eyeballs delivers advertisements to cellphones, charging advertisers for that service and rewarding users who agree to receive the messages.

By Lesley Stones