Monday, 3 November 2008

Anite Public Sector – Going, Going … Gone!

(By Anthony Miller) The deal to sell Anite’s Public Sector businesses to Northgate finally completed on Friday after the Office of Fair Trading concluded it did not need to refer the acquisition to the Competition Commission. You could almost hear the sigh of relief in Anite CEO Steve Rowley’s comment that the disposal constitutes “a significant milestone” in Anite’s transformation. Compared to the highly diversified conglomerate (read ‘patchwork quilt’) that was Anite in the John Hawkins years, this is somewhat of an understatement!

So, Northgate gets a welcome boost to its public sector business (we’ll be meeting CEO Chris Stone soon, by the way) but what about Anite? When the deal was announced (1st August) we thought this ought to be a precursor for the disposal of Anite’s remaining businesses (see Anite sells Public Sector business - at last!). Indeed, we were rather worried at the prospect of Anite making further acquisitions, mooted by Rowley at the time.

Today Anite is the near-proverbial ‘business of two halves’. Its Wireless division, itself two distinct businesses, experienced mixed fortunes. Handset testing suffered a near-30% revenue decline to £42m in FY08 (to April) with margins crashing from 28% to 5%. Management attributed the problems to technology cycles, US customer budget constraints and general weakness elsewhere (i.e. ‘not our fault’). May be, but I can’t believe that the rising dominance of Indian SIs (notably Wipro) in this area was not a major factor. The other part of the Wireless division, Network testing, fared much better, with revenues near-trebling to £19m and margins creeping up a tad to just over 12%. Anite’s travel software division also moved forward, growing revenue 13% to £31m and expanding margins from 22% to 26%. In September, Rowley reported order intake slightly higher yoy, with both Wireless and Travel performing “in line with the board’s expectations”.

Clearly there is little, if any, synergy between Anite’s divisions and neither appears to have sufficient critical mass to go it alone. May be there is an argument to ‘bulk up’ at least the Network testing or Travel businesses while valuations for potential targets are depressed. The funding looks like it's there – Anite’s net debt in April was some £15m, though part of the cash from the £54m disposal of the Public Sector business will be used for share buy-backs. Whether bulking up is the right move I can’t say without further scrutiny. But one thing is clear. There is still at least one more step to go – perhaps the final step – before Anite’s ‘transformation’ can be deemed complete.

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