Financial Mail - Signs of Promise

MICROMEGA Seeing signs of promise Investors in Micromega can look forward to dividend payments now that the company has disposed of several loss-making units, says management. This bullish forecast is also partially based on the investment holding company's prospects for Turrito Networks, its new technology business, which provides among other things hosting, Internet and cloud computing services. Founded in 2008 and acquired by Micromega two years later, Turrito's cloudware application technology has been in development for the past 3l years. The cloud computing product allows users (Turrito clients) to send virtual displays from their own data centre through the Internet to any mobile devices.

Turrito MD Brian Timperley says the company has signed up 20 local municipalities and is in a proof-of-concept phase with about 25 blue-chip companies.

The key to this technology is two fold, says Keith McLachlan, senior equities analyst at Thebe Securities. Not only is it device agnostic (which means it can work on any Android or Apple device), it can be demonstrated in less than two hours. Most of the research and development costs have already been accounted for and McLachlan says Turrito will have the right to annuity-based revenue from monthly licence fees at some very healthy margins if management can convert a few of these proofs of concept into contracts.

But though Turrito shows great promise, it made no contribution to earnings in 2011. Micromega's headline EPS rose by 27% to 21c/share for the year to December, while the net asset value increased by 4,5% to 307c/share. Despite the seemingly improved earnings, which moved the share price up to more than 6% following the announcement of the results, discontinued operations had a huge impact, reducing headline earnings by R17m. Micromega CE Greg Morris told analysts during the results presentation at the company's new offices in Sandton last week that the restructuring undertaken in 2011 has resulted in a portfolio of good business with solid market traction. Our realigned portfolio will be more cash generative, and thereby place the group in a position to commence the payment of dividends. McLachlan remains cautious, however, saying: Though the company's prospects seem to have turned around, management still has to prove that it can deliver. Brian Timperley Under pressure to deliver

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