JSE microcap technology stock 4Sight Holdings reported a strong set of results this week. That might be a bland statement — except if investors look back almost nine years ago to what was a right royal stuff-up of a listing on the AltX board.
What has transpired in the past few years would surprise small-cap sceptics, who in 2018 and 2019 would have written 4Sight off as just another acquisition vehicle tripped up by its own wayward ambitions.
For those that need reminding, 4Sight listed in late 2017, after a private placement to raise about R113m, at 200c a share — and even briefly skittered up to 260c. The listing coincided with a number of acquisitions, a strategy that extended into the following year.
By late 2019, the company was under threat for not reporting its interim numbers timeously, and corporate governance looked compromised. Not surprisingly, the share price wound down to about 20c.
Shareholders that had vendored their businesses into 4Sight had to urgently step in and take charge, which ushered in new leadership headed by CEO Tertius Zitzke at the end of 2019.
Today the business looks more than respectable. 4Sight, in the year to end-February, delivered headline earnings growth of 46% and a dividend of 3c a share to shareholders.
Zitzke said the group’s strategic acquisition of XFour in the previous financial year was a major contributor to performance. He disclosed that XFour exceeded the earnout target by 64%, with its leadership now heading the human capital segment within 4Sight.
“The main driver was the high adoption of XFour’s 4edge secure, Popia-compliant WhatsApp delivery platform, which enables companies to facilitate various processes via the desktop and phone app, including sales, marketing and HR.” (Popia is the Protection of Personal Information Act.)
Zitzke sees major future growth in this area of the business, as more companies embrace the pervasive and embedded messaging platform. “Within emerging markets like Africa, these self-service solutions allow every level of the workforce to effectively and easily engage with all HR functionality in any organisation.”
Still, 4Sight is probably off the radar for most JSE investors; even small-cap aficionados might be forgiven for not looking at it, given its market cap of just R434m.
Small-cap market aside, 4Sight is a well-diversified business offering an array of technology solutions to SME clients. It operates as a licensed reseller and support agent for Microsoft and other software vendors in South Africa and across Africa. The business also offers IT consulting services to organisations on process and system automation, cloud solutions, data analytics, AI tools and the implementation of AI-automated processes into daily business operations.
More than 80% of the stock is tied up in just 40 shareholders out of its total shareholder base of more than 44,000
The business has a broad service offering, which makes it complex to understand. But it offers plenty of sales and cross-sell opportunities to customers and provides diversification across client and revenue streams. South Africa accounts for just over 60% of revenue, the rest of Africa for 30%. The remainder is split between Europe and the Americas. 4Sight does practically all its business with the private sector, mining and heavy industry being two of its main sectors.
The final dividend of 3c a share was unexpected. There was no dividend in the prior period, though 4Sight paid both an interim and a final dividend in 2024. Speaking to analysts after the results presentation, Zitzke noted that while no formal dividend policy is in place, directors are keen to provide a growing dividend to shareholders over time, subject to no other compelling use for the cash, such as acquisitions.
4Sight has made acquisitions in the past and Zitzke confirmed the group is looking for more, with the cash available on the balance sheet. Acquisitions are expected to be bolt-on and to fit neatly into the business’s service offering, with a strong cultural alignment to 4Sight’s entrepreneurial, can-do culture. The ability to bring highly specialised tech talent into the broader 4Sight business is also a key focus for any acquisition.
4Sight rounded out the year with R110m in cash, which, even after it pays out the declared final dividend in mid-June, should leave a decent little war chest to fund acquisitions if they come along. Its most recent acquisition exceeded its earnout targets, which should give investors confidence that management can deploy capital effectively through acquisitions and then integrate them into the 4Sight business.
One of the things holding the company back is the shape of its share register. More than 80% of the stock is tied up in just 40 shareholders out of its total shareholder base of more than 44,000. Improving liquidity is no easy feat, especially when trading at a low earnings multiple. But continued strong operational execution and associated financial results will certainly help improve the multiple. Despite constrained liquidity, 4Sight’s share price has performed extremely well, rising more than 180% in the past three years and briefly cresting 100c in 2024.
Strategies to improve liquidity could include an underwritten dividend reinvestment plan or a bonus option issue at a 1-for-20 ratio, with a strike price set meaningfully above the current price and a two-year time horizon to expiry. This would reduce dilution as the options would be exercised only if the share price rises over the period, hopefully through a combination of earnings multiple expansion and continued headline earnings growth.
Improving liquidity and reducing shareholder concentration will need to be part of the board’s and management’s mandate over the next few years, if 4Sight wants to realistically position itself for inclusion in the portfolios of more institutional investors. Given some very large holders in the stock, institutional investors are probably these shareholders’ only avenue for liquidity if and when they decide to take some chips off the table.
4Sight certainly sees itself as a growth company with plans to meaningfully increase its scale and profitability over the coming years. It’s a stock for investors to add to their watchlist or maybe take a small starter position in. Despite a share price that has been on the rise, 4Sight is still trading at a single-digit earnings multiple, so investors are not paying up at the current price by any means.
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