The last time investors were mesmerised by new technological advances was the late 1990s, when the internet stock boom raged. With unchecked exuberance, they flocked to any new listing with a dot-com suffix.
Poster stocks like Amazon, Microsoft, Google and Yahoo were initially the centre of attention, but smaller ventures that promised rich returns started commanding chunks of the enthusiastic capital flows.
The JSE got caught up in the frenzy. Between 1997 and 1998, more than 100 new companies, many of them tech stocks, were listed on the local bourse.
Readers might recall (in some instances, painfully) companies such as Brainware, iXchange (later FrontRange), Idion, Prism, Metropolis Interactive and SecureDate Solutions.
Ironically, it was at this time that technology heavyweight IBM was delisted from the JSE after being bought out by its US parent.
Not many of those tech listings survived. Unchecked ambitions burnt through capital without harnessing the cash flows required to maintain a strategic course. Some were bought out, others shrivelled up. A few — Lesaka (the former Net1), Datatec, Mustek and iOCO (the old EOH) — are still around.
While sentiment on the JSE is usually led by the US, the AI investment splurge has not manifested locally; there’s little sign of an influx of AI-themed listings. That could be because most entrepreneurial-minded developers prefer to seek out private equity or angel investor backing.
South Africans need not look too hard for an AI angle on the JSE — it might, in watered-down form, be accessible via tech heavyweight Naspers/Prosus or the handful of technology service listings.
But the JSE does actually have its own “proper” AI play — not an inward secondary listing but a homegrown venture that, after a rocky start in 2017, has been consistently profitable for the past few years.
Cue 4Sight Holdings. It’s not an AI developer, but it does have a strategic focus on mobilising the latest AI to curb its clients’ operating costs. The company covers a swathe of sectors, from mining and telecoms to retail and the public sector.
4Sight is tiny — even with total revenue likely to kick past the R1.5bn mark in the current financial year, it has a market value of less than R400m. And, in contrast to the frenzied sentiment over AI firms globally, it trades on a modest forward earnings multiple of about 6.5 and offers a dividend yield of 4.5%.
At the best of times, local investors look past small-cap counters, so it might take a while for the 4Sight story to capture their attention.
While the company initially pitched itself as a purveyor of fourth industrial revolution solutions, AI is now at the centre of its suite of services. “AI” showed up nearly 50 times in the commentary on its latest half-year results.
Of course, monetising the AI talk is what really matters.
CEO Tertius Zitzke says the purveyors of AI-linked technology services in South Africa had initially seen a slow uptake. “Companies were reluctant to immediately spend on this new technology. Now we are seeing much stronger demand for our services,” he says.
Growing demand for 4Sight’s services might also trigger corporate action in the short term. Zitzke says the group would like to grow turnover in all 14 of its divisions by R200m. “We have looked at a lot of potential acquisitions. There is one company that has caught our eye, and we might like to take this to the final stage.”
4Sight’s growth has been steady rather than spectacular. Revenue for the six months to end-August was up 29% to R748m, with operating profit up 12% to R54m.
Zitzke stresses the distinction between revenue growth and profitability, adding that the expansion of software as a service and ecosystem-led revenue strengthened its market reach.
The focus, he says, is not growth at any cost, but rather to scale its wider ecosystem, improving its mix and operating leverage over time. The trick will be to convert this reach into higher-value AI-driven opportunities.
On this score, Zitzke is optimistic. “Our [recent] financial performance gives us a platform for the next phase, but our ambition is larger than a set of half-year numbers. We aim to build 4Sight into an AI-first frontier organisation and to use that experience to help our customers do the same.”