Amalgamated Electronics share analysis

2012-08-30 I own some Conduit Capital, which in turn owns 26.5% of Amalgamated Electronics (Amecor), a listed share. Amecor has dropped in value since Conduit purchased it, so I thought I should have a look under the bonnet.

What do Amalgamated Electronics produce?

Amecor is a group of companies "specialising in the design, manufacture and distribution of leading brands within the electronic security and alternative energy industries".

FSK "supplies a wide variety of Radio Frequency & GSM based technology, providing secured wireless communication between monitored sites & responding control centres...Data signals are transmitted simultaneously via multiple mediums including: GSM, RF & Internet Protocols. The dual transmission of mediums ensure complete signal integrity, giving security/monitoring companies & alarm/network users complete peace of mind...Historically FSK products were designed specifically for use in the security industry, but innovations into GSM & IP technologies, expanded product rangers beyond our niche market, allowing for many more monitoring applications which include: individual; equipment; and environmental monitoring...FSK currently has in excess of 200VHF radio networks operating in South Africa, and are in the ongoing-process of expanding network coverage throughout Africa & neighbouring overseas territories."

Sabre Radio Networks "owns, installs, manages & maintains all the equipment used on the radio & GSM networks..Sabre's networks are transmitted throughout all major centres in SA, permitting national coverage, with real time monitoring of sites from anywhere in the country...The Sabre Network is utilised by security companies to monitor alarms or alternative equipment on clients' premises, without having to install, maintain & service their own networks. Each security company is assigned their own bandwidth on the network for which a subscription fee is paid...In addition to the radio network, Sabre provides a GSM private APN & servers for the routing of alarm information via the GSM network. The GSM network allows for national routing of alarm signals, along with a high speed back up to the radio networks."

Power Development Services "manufacture, distribute & install power generating equipment which is used primarily in the corporate & industrial sector". There are 3 areas:

Secequip Supplies is an importer and distributor (to trade customers) of electronic products through its established national network of 13 branches (including the Texecom range of products, services & solutions to primarily the security industry, but also the broader electronics industry). Products include control panels, CCTV equipment, video surveillance products, motion detectors, perimeter protection devices, heat & smoke detectors, gate motors & electric fencing.

Valuation of Amecor

Security is big business in South Africa, and I especially like the annuity income from Sabre Radio Networks, but with advances in technology, I am concerned about increases in reliability of GSM & internet devaluing the importance of their radio infrastructure, and making it easier for competitors to emerge.

Financial year to 31 March 2012

I've apportioned the consolidation adjustments to each line of business (by income), and arrived at the following segmental income figures:

	Security production & sales	Network & annuity income	Supply & maintenance of alternative power sources	Holding & management subsidiary companies
F2012	37%	37%	14%	13%

Turnover increased by 53% in the year to 31 March 2012, costs by 63%, and gross profit by 40%; a significant expansion of the business, resulting primarily from the Secequip transaction & a growth in annuity income in Sabre Radio Networks. However, because of the increase in operating costs net profit was not much changed.

Result reflect margins under pressure: "The production and sales element of the Group faced challenges in the current economic conditions, resulting in reduction in margins to remain competitive in the market."

"The Group, as a whole, experienced an increase in operating costs as a direct result of electricity rate hikes, higher salaries and wages, and increasing fuel prices. In addition, non-recurring costs were incurred in effecting the integration of the Secequip business into the Group".

Key players

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