4Sight Holdings has been through the wringer in the past six years … so much so that even the hardiest small-cap punter would have approached the share with a great deal of caution.
The company brought its artificial intelligence offering to the JSE in 2017, when it raised a not insubstantial R113m by placing 56.4-million new shares at 200c each. The capital raising meant 4Sight could fund a slew of specialist technology acquisitions which appeared to be aimed at building a compelling AI hub.
But experienced investors will know that assembling a growth vehicle driven by acquisition is no easy task — even if Bidvest and Imperial managed the strategy with aplomb. More often than not — especially in acquisitive but inexperienced small caps — the centre does not hold, especially when a key acquisition does not deliver to expectations.
4Sight had its share of problems — not only operational fizzles but also some scary corporate governance challenges. Investors morbidly fascinated by such developments are directed to 4Sight’s Sens history …
That said, there are signs the ship is steadying. The bigger picture looks optimistic too. AI has gained traction as companies look to refine operating costs.
Admittedly, 4Sight is a difficult business model to comprehend, especially for technophobic investors. CEO Tertius Zitzke explains: “Our strategy focuses on looking at a customer’s operation from the outside in, then leveraging technology to craft solutions that drive transformation in key domains within the business, namely people, customers, operations, finance and innovation.”
He says innovation-focused transformation supports customers by identifying issues, challenges and inefficiencies and developing data-driven solutions.
“From a people perspective, 4Sight empowers employees to increase efficiencies and productivity by modernising the workplace environment through improved communication and collaboration.”
Zitzke says hybrid working means these capabilities have become critical to monitor remote workers’ productivity and performance.
Financially speaking, 4Sight offers much to mull. In the year to end-December, revenue grew by a sprightly 21% and operating profit by 94%. Encouragingly, operating expenses rose only 4% — not too shabby in an inflationary environment.
What stands out for IM is that 4Sight’s operating profit of R22m was more than matched in the cash flow statement. Cash flow from operations was R42.6m and net cash flow was R35m — equivalent to 6.6c a share and 5.4c a share respectively.
IM also takes some heart from the spread of business activities, which shows promise in terms of securing sustainable annuity flows. Consulting still accounts for a fair chunk of the top line with R217m in the past financial year, with sales of physical goods churning R46m. Support and maintenance revenue increased markedly from R191m to R288m, while licences came in at R92m and software as a service generated R46m.
Technology has become a core strategic foundation and serves as a key determinant of organisational survival and success
— Tertius Zitzke
Most revenue, around R492m, is still generated in SA — and mainly in the industrial sector — but rest-of-Africa business grew rapidly from R108m to R170m. About R33m was generated offshore — mainly Europe, the Middle East and the Americas.
Reflecting on the past year’s performance, the group noted continued growth in the higher margin direct go-to-market strategy, where dedicated internal clusters focus on selling 4Sight’s IP solutions into the enterprise market.
The group also confirmed the industrial sector remained the strongest contributor to growth, particularly the mining, metals and manufacturing industries.
“As such, we will continue to increase our focus within these verticals as these sectors accelerate digital transformation initiatives to streamline operations and create greater efficiencies to contain costs.”
One additional item of interest is that last year 4Sight retired 19% of issued shares through a repurchase agreement. This entailed spending R16m to pick up a meaningful tranche of more than 120-million shares at a nifty 12.75c each.
With only a small free float (perhaps 20%), it is doubtful 4Sight will repurchase more shares — though IM wonders whether a delisting is not a logical step at current prices. A dividend would underline confidence in the group’s longer-term prospects.
Speaking of which, Zitzke says: “We expect businesses in every sector will continue investing in digital transformation to reinvent and improve operations as technology has become a core strategic foundation and serves as a key determinant of organisational survival and success.”
He sees “massive potential” for 4Sight’s solutions. “We therefore remain confident in our ability to continue growing the business into 2023 and beyond.”
*The writer holds shares in 4Sight Holdings
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