Allied Electronics | Utilising the balance sheet for growth
Altron's H1'20 results were softer than we had expected as growth projects did not generate EBITDA but consumed working capital. Consequently, cashflows were limited, but net debt to EBITDA of 1.1x was maintained within the target of 1x demonstrating the improved health of the balance sheet. We expect H2'20 to include an unwind of R350m of working capital and project revenue recognition which should improve EBITDA. Altron will probably maintain the higher working capital levels into the future given the multi-year projects in Nexus. The ICT strategy can deliver strong cashflow generation through the Group's annuity revenue of 58%. The annuity revenue should translate to an EBITDA to operating cashflow conversion rate of c.80% (H1'19: -5%, FY'19: 74%, FY'18:71%) or c.R800m per year.We maintain our 12-month target price of R30ps and OUTPERFORM recommendation.
Allied Electronics is an investment holding company. Co. invests in the telecommunications, multi-media, information technology and power electronics industries through its subsidiaries, Allied Technologies Limited, Bytes Technology Group (Pty) Limited and Power Technologies (Pty) Limited. Co.'s products and services are comprised of Powertech Cables, Powertech Transformers, Powertech Batteries, Crabtree, Powertech System Integrators, Turnkey substation projects, Transport and Rail Solutions, Renewable Energy Solutions, and Switchgear.
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