Troubling times at Gijima

The JSE-listed IT services company’s share price has been cut nearly in half in the past three months as investors dump the stock. Is there more trouble ahead? By Duncan McLeod.

Outgoing Gijima CEO Jonas Bogoshi

It’s been a good year for most technology stocks listed on the JSE. One notable exception is Gijima, whose share price has tumbled by more than two-thirds in the past 12 months as investors fret about the company’s future.

It’s lost nearly half its value since it published its annual results in late September and was trading at just 22c/share, a record low, on Wednesday morning.

Even as peers in the technology sector, including EOH, Datatec and Pinnacle, have soared in 2012, Gijima’s share price has tanked, despite the company reporting a reduced headline loss of R50,7m in the year to 30 June, compared to a loss of R209m a year earlier.

Chairman Robert Gumede, who is also a major shareholder, says in its 2012 annual report that the year was a “tough one” as Gijima tried to claw back from the losses it reported in 2011 as well as the termination of big contracts and the need to complete what he calls a “transformational restructuring” of the business.

Gijima lost half of a big contract with Absa and a lucrative IT deal with the SA Police Service. Last year, it lost a R2,4bn contract with the department of home affairs.

“The impact of the expiry of one contract and the insourcing of a material portion of a key contract required rapid decision making around optimisation to ensure the organisation remained appropriately positioned to generate shareholder value,” Gumede says. The company spent R38,3m retrenching staff earlier this year.

“Despite the contract losses, the group managed to perform in line with last year, with the losses in one area being made up by gains in other areas. This propensity to handle the challenges we face within a tough industry is a hallmark of Gijima.”

Gumede says in the annual report that the company’s future is “bright”.

“With the right leadership presiding over an energised workforce, the future will be what we create,” he says. “Our pipeline [of business] is healthy and solid, the development of new Gijima intellectual property is constantly growing, and our customers are loyal.”

Yet, the share price continues to tank, possibly reacting badly to news that CEO Jonas Bogoshi said at the September results presentation that he would step down at the end of December. Chief operating officer Eileen Wilton has taken the top job in an interim capacity and is shadowing Bogoshi until he leaves the company in a few weeks’ time.

Kaplan Equity Analysts MD Irnest Kaplan is puzzled by the recent declines in Gijima’s share price. “There is no fundamental reason why the share price should have halved,” he says. “Other than Gijima appointing an interim CEO, there has been no major fundamental news.”

Kaplan, who owns shares in the company, says that “unless certain investors know something I don’t, it looks like it represents a buying opportunity”. The recent sale of subsidiary MineRP should also boost the company’s liquidity position significantly, chief financial officer Carlos Ferreira says in the annual report.

Also, Gijima renewed half of its R300m debtor securitisation programme for a further five-year period in the 2012 financial year and this will provide it with stability in its long-term funding base, Ferreira says.

“The group generated positive cash flow balances over the past year, despite the funding requirements relating to the reorganisation and restructure,” Ferreira says. At the end of June, it had increased cash and cash equivalents to R117m, from R86,5m a year earlier.

“The share looks cheap at the moment,” says Kaplan. “I think this should easily be in the 40c to 50c range. There is a good opportunity, but it’s only a good opportunity if other investors think likewise.”

Kaplan thinks investors may be concerned about Gijima’s long-term growth prospects, especially in the public sector, where it has lost key contracts.

Ferreira tells TechCentral that one of the company’s institutional shareholders had to sell its shares — “to get out of more actively managed shares” — and that this may have had an impact on the share price. However, he says, apart from this, nothing significant had happened that would explain the sharp fall in Gijima’s share price.  — (c) 2012 NewsCentral Media

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