Avior Capital Markets - Allied Electronics Corp A (1044) Allied Electronics | Utilising the balance sheet for growth

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Avior Capital Markets

Ruhan du Plessis

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.

30/10/2019 8 EN

Underlying

Allied Electronics Corp A

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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ZAE000191342 Johannesburg Stock Exchange South Africa

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Avior Capital Markets

Avior is a globally recognised capital markets research and trading firm, with the broadest research coverage within the region, with 100+ SA and 20+ SSA companies under coverage. Avior services clients from offices in London, Cape Town and Johannesburg.

Our research quality is consistently recognised in local and global surveys, with 18 analysts currently rated in their respective sectors (FM 2017). Value add through in-depth, innovative, high quality and consistent research with comprehensive underlying fundamental modelling supported by regular analyst and roadshow interactions.

Avior has proven that by working closely with our clients we can mutually develop dominant positions in certain sectors, going from strength to strength. Avior has a dedicated ESG team, having been ranked #1 in Corporate Governance research since 2008.

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Analysts

Ruhan du Plessis

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Allied Electronics | Utilising the balance sheet for growth

Altron - Further margin expansion in H125

Altron - Strong earnings growth in H125

Altron - Keeping Altron Document Solutions

Tiger Brands | ESG | Pressed to execute

SA Investment Strategy | Review of January 2020 for SA investors: Coronavirus weighs on the ZAR

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