Shares in Adapt IT, a software group listed on the JSE, have leapt by 165.5% in the past fortnight, demonstrating there are still ways for investors to profit from the local market, even in a depressed economic environment.

The resultant leap in the company’s market capitalisation, from R163.3-million to R433.7-million, came after it provided a bullish trading statement to investors at the end of September.

Instead of the severe Covid-19-created difficulties investors had clearly been expecting, Adapt IT said on 30 September that headline earnings per share for the year ended 30 June 2020 would rise by as much as 19.3%, signalling a very strong second half of the financial year for the group.

Normalised Heps would likely change by between -1.4% and 3.6% — a commendable performance given the hard lockdown during the second half of the financial year.

And excluding the effects of implementing IFRS 16 – a new accounting standard Adapt IT has adopted – Heps would have jumped by as much as 29.2% (or 11.1% normalised). Shares leapt 60% on the day the trading update was published and have been gaining ground ever since.

While some divisions performed at reduced capacity as a result of the lockdown, mainly the hospitality sector, other divisions found opportunity and expanded, Adapt IT said.

Staff cuts

The group cut about 10% of its staff as a result of Covid-19, with divisions where difficult trading conditions were expected feeling the brunt of retrenchments. These cuts would aid the improvement of trading margins, Adapt IT said.

“The business remains highly resilient and cash generation has been strong. The net interest-bearing debt-to-equity ratio at 30 June 2020 was below target level and significantly lower than the prior comparable period. All debt has been serviced in the ordinary course of business and all debt covenants met at 30 June,” it said.

Despite the surge in the share price over the past two weeks, Adapt IT is still trading down 29.1% year over year, while year to date the shares are down 15.7%. Over three years, they’re down 64.1%.