JSE-listed technology group 4Sight Holdings is one of the most searched for businesses on our site. The share is down 80% in the last 12 months and we take a look at the newsflow around the share.
The share closed at 23c on Friday, trading down 11.5% with 29013 shares changing hands. This puts the business on an historical Price to Earnings (PE) multiple of 1.5 times earnings and a significant discount to its previously reported Net Asset Value (NAV) of 139c/share.
The NAV figure was reported as part of its 12-month financials to the end of December 2018.
In these financials, 4Sight reported $44.5m in revenue and a gross profit of $28.5m. However, after operating expenses and impairments of $31.7m, this dropped to an operating profit of just $407 024.
After tax, the profit turned to a loss of $1.08m.
The $31.7m figure has some relevance as it is nearly $10m higher than the “revised profit forecast” released earlier in 2018. The company explains that this is due to not including the acquisitions of AccTech, Dynamics, SET, Strategix, and 75% of Onesource and Ntsika; which were acquired after the revised profit forecast was published.
The two major impairments according to the results commentary comprise:
- Impairment of investment in Age Technologies ($5 913 200)
- Impairment of investment in VLS ($838 034)
The company has $3.9m in cash and cash equivalents.
The Goodwill figure
The NAV calculation at first glance, suggests a business trading at well below its fair value but if one looks at the goodwill figure, you will find that of $69m in assets, $32m is goodwill. Strip out the goodwill and you get to about 70c (South African) in “value”.
With an impairment of $6.7m recorded in the books, this suggests that 4Sight has been a little generous in its acquisition process.
Overpaying for assets?
The impairments at VLS and Age Technologies, suggest that the 4Sight team have been very aggressive in trying to bulk up the business and create revenue by cobbling a number of businesses together. In both cases, they were impaired due to “non-performance”.
Visualitics Proprietary Limited (VLS) was brought into the 4Sight mix through previous group CEO Antonie Van Rensburg and was the subject of an internal dispute.
Van Rensburg is not the only legal dispute noted in the annual results presentation with the group flagging a legal dispute with one of its other non-executive directors and arbitration proceedings against one of its partners relating to licensing.
The company also opted to unwind its investment in Curo Health.
The current 4Sight portfolio
The 4Sight portfolio comprises:
- Fleek Consulting Proprietary Limited
- Casewise South Africa Proprietary Limited
- Visualitics Proprietary Limited and its subsidiaries
- AccTech Systems Proprietary Limited
- Dynamics Africa Services Proprietary Limited
- Simulation Engineering Technologies Proprietary Limited
- Xwes Proprietary Limited T/A Ntsika ICT Security
- Strategix Applications Solutions Proprietary Limited
- Combined Source Trading Proprietary Limited T/A One Source Africa
On 16 April 2018, the Company voluntarily announced the signing of a Memorandum of
Understanding with Shenzhen Rongmei Science and Technology Co. Limited (‘RM’): to establish a 50:50 joint venture in China which it suggests could be a driver of earnings going forward.
RM was apparently established in 2008 and appears to specialize in ATM refurbishment but appears to have a limited web presence on professional networks like LinkedIn.
At 23c/share, 4Sight appears to offer an interesting technology play, especially if one considers that 7c/share represents the cash balances of the business.
Assuming no further impairments and a repeat of its 2018 performance, the business should theoretically generate about $5m in profit or 9c/share in earnings.
Having said that, there appear to be question marks about the complexity of the business and bedding down multiple acquisitions. The core South African assets appear to be straight-forward but the loss-making Mauritian assets and the venture into China, adds to the complexity and risk related to 4Sight.