Son of Sam, or new saviour?
Beget Holdings is an IT solutions company playing primarily in the mobile commerce space. It made a quiet debut on the JSE Securities Exchange venture capital board in early December last year, with the aim of raising about R4 million in equity finance.Apart from a few news reports, not much was made of the listing and the share has been trading in very small volumes ever since.The listing is worth watching, however. It offers the first indication in over a year of what investors in IT markets might expect from new listings should an eventual uptick in the sector breathe some life into tech equities.More importantly, the listing attracted a surprising level of noise among readers of investment publications, such as the MoneyWeb online forum. The track record of Beget`s principals came under vociferous – if anonymous – fire. Many investors have questioned what business the company has being listed at all. Who is this new kid?Beget Holdings was incorporated in January 2002. It has two wholly owned subsidiaries. Beget Solutions incorporates Orbes Dynamics, Eze Bill and TM Commerce. The other subsidiary, Smartcast, was a competitor acquired for its customer database in September last year. This acquisition was cited as the reason for delaying the listing, which was originally planned for September 2002.The prime focus of the group is GSM technology to deliver data, and the various companies have developed software to aid what the company believes is a growing market.One of Beget`s major products at the moment is SMSmalls, which delivers SMS marketing to consenting consumers.Through SMSmalls, messages can be sent to fax machines or e-mail, from e-mail to SMS, or by turning Internet or SMS messages into voice. SMSmalls is marketed throughout the country via a number of licensees who operate in demarcated areas.Apart from marketing messages, SMSmalls can be used for internal communications and reminders to staff members. Personalised messages such as those needed to enhance customer service or customer relations (such as payment reminders or birthday wishes) can be delivered at predetermined dates and times.SMSsmalls targets consensual recipients and founding directors André Potgieter and Johan Coetzee explain that the Smartcast division has already received backing from a subsidiary of one of the world`s biggest organisations – the Catholic Church of South Africa.Parishioners sign forms to give consent to receive SMS messages from interested advertisers such as banks and insurance industries. A percentage (25 cents per SMS in the case of the Catholic diocese) is then donated to the church.“Our database is private and advertisers approach us to perform the mail drop. This means we can give them location, gender and age specific access,” says Potgieter. Watch this!The SABC has been one of Beget`s clients and the company performed an SMS campaign for the SABC1 programme All You Need is Love with some success, as well as unexpected results.Some 100 000 people received a series of four lovelorn messages signed from a “secret admirer” sent over a five day period leading up to the show`s debut on 5 October. The final message disclosed SABC1, Simunye, as the sender publicising the TV programme.“The fact that these messages must be read guaranteed marketing exposure; coupled with this, the supporting media coverage would have reached several million people,” claims Paddy Smuts, director of Smartcast.About 40 percent of those targeted in the campaign reacted either by return SMS or more “hands on” means – like calls to their service providers and networks. Most were intrigued by the messages, with less than 0.1 percent reacting adversely, the company claims.But adverse they were. “Our staff monitoring incoming calls were threatened. The SAPS fraud squad arrived at the Pretoria head office of our holding company, Beget, to verify that our database was restricted to cell phone numbers of users who have consented to receive marketing SMSs. We were even visited by private detectives investigating on behalf of suspicious spouses. Although messages can be sent anonymously, the sender is always traceable.”One recipient of the messages, known to Brainstorm, was also unimpressed. She found herself unable to determine the identity behind the originating number, unable to contact it telephonically, and her SMS response went unanswered. Moreover, she says: “I can`t recall ever giving permission to receive marketing, whether by e-mail or SMS. I`m very careful about that sort of thing, and always look to check or uncheck the relevant box on any forms I complete.”Smuts was aware that the campaign could have adverse repercussions. “Smartcast was only the messenger. We set up code red lines to TBWA Hunt Lascaris, Digirati and SABC1 to channel any problematic calls through to them.”Generally, the company maintains, the responses were good-natured with some being downright disappointed when they found out that, in reality, there was no secret admirer.The nationwide campaign was specifically targeted at those aged between 16 and 34 with a 60 percent female bias. Recipients were drawn predominantly from metropolitan areas. Smartcast claims its database of cell phone users is fully categorised and that all consenting recipients of SMS messages fill in a detailed questionnaire providing information such as age, marital status and interests. Brainstorm`s source does not recall any such questionnaire. And as for targeted marketing, our source doesn`t own a television and won`t appear on the SABC`s television licence records. But since our source isn`t a statistically significant sample, we`ll put it down to fluke.The campaign was also time specific: messages were only delivered during mid-morning or mid-afternoon when the company, inexplicably, believes recipients are likely to be alone. Brainstorm`s source works in an open plan office, of course.Exploiting SMS as a marketing medium is not a new idea. A slew of companies brandished the concept along with databases containing millions of names to attract investment. They tried to surf the big waves of the time, but few emerged from the tube to claim any prizes.Worse, there remains a cloud over the directors because of their involvement with the ill-fated Billcad, a boom-time listing later renamed Planit Technologies. The Beget directors left just over a year before it went bust, but not before prompting a failed turnaround amid acrimonious public squabbles with management.Questions thus arise not only about whether Beget`s business makes an attractive investment, but also whether it is a suitable listee in the first place.Let`s consider the forecast numbers. In its prospectus, Beget promises growth that looks very optimistic in the current market conditions.The company achieved revenue of R1.66 million and earnings after tax of R502 000 for the six months to June last year. It is forecasting revenue of R9.25 million and earnings after tax of R2.9 million for the full year to December 2003. That works out to revenue growth expectations of 278 percent – numbers that despite a low base vividly recall the party of 1999.Headline earnings per share of 0.75c for the year to December 2002 are expected to improve to 1.15c per share for the same period this year. On another planitThen there is the cloud over the two founders.Potgieter and Coetzee took Billcad to the JSE main board in 1997. The company changed its name to Planit Technologies, and at its peak sported a market capitalisation of over R1 billion. But the two directors say a rapid acquisition spree soon made the company difficult to control.The two resigned from the Planit board in January 1999, but remained major shareholders. A prolonged battle ensued to recover R20 million they claim they were owed.At the same time, Potgieter and Coetzee led a boardroom coup that resulted in a completely new board for Planit and the two Beget founders say they personally funded the turnaround planned for the company, which had fallen deep into the red, and was worth only R20 million now.The new board, under the leadership of Dale Packham, put the company under a magnifying glass, calling in two sets of forensic auditors to pick over documentation to determine where possible indiscretions might have taken place.Potgieter and Coetzee offered to purchase some of the Planit assets involved in desktop application, but an agreement between the two and the new Planit board saw the assets returned to the listed entity.Meanwhile, both Potgieter and Coetzee remained shareholders, and say that despite the fact that they no longer had director status, they continued to finance the company, including servicing the company`s overdraft.“It was in our interest to do whatever we could to help the company remain afloat as it was the only way we would ever see our money again,” explains Potgieter.But Packham didn`t last the distance either, and after his resignation from the board, shareholders installed Malcolm Moody at the October 2001 AGM. But there was no saving the sinking ship and a month later the board of Planit applied for liquidation.“The wisdom of hindsight,” laments Potgieter. “We should have stayed on the board. We made our mistakes but we have learned from them.”The Beget prospectus discloses the couple`s previous association with Planit, but a note on its subsequent fate was not required, since the resignations from the board occurred more than 12 months prior to the liquidation. But those who recalled this history were amazed that the two men once again asked the JSE to approve a listing – especially since the goal of this expensive exercise was to raise a comparatively paltry sum. It`s all about imageAccording to the two, the motive for the listing was to build credibility – it has to nominally satisfy the JSE`s listing requirements, after all – and to raise its profile in the market. This was even more important since Beget, not satisfied with the local market, had already set up international operations.SMSmalls has sold a country licence to an outfit in the UK. Managed by John Raath, this licence is set to start operating in February. A country licence was also sold in Australia to set up SMSmalls and the company says the Australian licensees are already in negotiation with companies in Singapore and Malaysia.Other expansion includes a joint venture between Beget and Ianitor International of Namibia, which has established an SMS platform with Airtel Seychelles.Coetzee says Beget`s main appeal lies with the smaller companies and institutions, which will benefit the most from a cost-effective marketing option.“We are empowering the butcher, the baker and the candlestick maker, and with the amount of local and international interest it was imperative we had a high profile – hence the listing,” he says. Paying with the big boysBut as every company listed on the local bourse will tell you (especially when sub-standard results come out), listing and staying listed on the JSE is not cheap.Potgieter says it cost around R900 000 to finance the initial listing and he expects it to cost around R350 000 per year to keep the company listed. The money will come from two placements, to raise R1.1 million and R3.2 million respectively.“Now that we have a listed vehicle we can use the scrip well to fund growth. We have 570 shareholders and we are looking to go on a roadshow this year,” he says.“Listing is not for sissies,” says Coetzee, and he believes new, tougher rules might chase some of the venture capital away from the board.Both men agree that tougher listing requirements are a good thing, but say that it was a long and bumpy road to complete all the necessary documentation.Henk Engelbrecht of Exchange Sponsors saw Beget through all the listing requirements and will continue to police the company while it remains on the bourse.“The JSE process was not overly strenuous, and the stricter rules are for the best. Beget went through the process, and the extra audits and reports relating to the acquisition took time, but the business plan was approved by the JSE in May or June last year already,” says Engelbrecht.“Questions were asked of André and Johan regarding Billcad, or Planit as it became, but full disclosure was made and the JSE was satisfied.”However, the critical question, given the arduous and costly nature of a listing, and the current lacklustre performance of the IT industry in general, remains: Does Beget have any place being on the JSE at all? JSE no judgeThough Potgieter and Coetzee`s dealings with liquidated Planit sparked ire in the market at the time of the listing, John Burke of the JSE listing department says the bourse is not there to judge a company.“It is not the JSE`s job to decide whether a director is a good director or not. We ask for full disclosure and it is up to the shareholders to make up their own minds,” says Burke. Nor is it for the JSE to judge a company`s longevity or performance on the boards, says Burke.“[Beget] is a small company and the venture capital markets are always high risk. Dimension Data was once a VCM-listed company. Shareholders must decide for themselves.”This remains worrying, as the JSE has been accused of being the “Wild West” of stock exchanges. But Burke says, on the whole, South Africans remain risk averse and not many people invest in smaller, riskier counters.“Investors in places like Canada and Australia realise that two out of three companies they invest in will fail, but they stand to make it big on the one that does succeed.“I don`t have a problem if a business model fails, what concerns me is if a company fails because of bad governance or crooked dealings by the directors; that is what we have to watch,” maintains Burke.So despite market ambivalence about the share, scepticism surrounding the bona fides of the directors and the impossible task of finding an analyst who actually follows the counter, it seems local investors shall have to take Mr Burke`s advice and watch the share, watch the results and figure it out all by themselves.
02 February 2003
Beget Holdings is an IT solutions company playing primarily in the mobile commerce space. It made a quiet debut on the JSE Securities Exchange venture capital board in early December last year, with the aim of raising about R4 million in equity finance.
The listing is worth watching, however. It offers the first indication in over a year of what investors in IT markets might expect from new listings should an eventual uptick in the sector breathe some life into tech equities.
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