Reunert and Altron once again dominated the electronics & electrical (E&E) sector in 2006. The two firms make up over 90% of the sector's R30bn market cap. Reunert saw a 93,1% rise to R67,50/share while Altron's share price rose 83,11% to R28,20 for the year to end March 2006. Both shares have continued to harden since then, with Reunert's at around R78 and Altron's at about R52 in late May 2007.

This is a continuation of solid performances in 2005, during which Altron registered a 41,6% price gain and Reunert 41,1%. It's easy to see why their share prices have rocketed.

Reunert CEO Gerrit Pretorius should be smiling. The group increased revenue 17% to R8,2bn while operating profit grew 39% to R1,3bn. Altron's revenue grew 14% to R14bn and operating income exceeded R1bn for the first time.

The companies were also feeling generous. Reunert raised total dividends by 39% to 222c and Altron increased dividends 24% to 78c.

Institutional investors have taken a liking to the sector. Equity funds increased their investment from R1,2bn to R1,8bn in Reunert and from R1,6bn to R1,8bn in Altron.

The sector's electrical engineering operations are expected to maintain robust performance in light of the upgrading of the country's infra-structure ahead of the 2010 soccer World Cup.

Power utility Eskom's capital expenditure programme over the next few years will be a boost for Altron's Powertech division, and Reunert is well positioned to gain from Telkom's plans to invest R30bn in its new high-speed network.

Altron CEO Robbie Venter believes electrical engineering will continue to do well beyond 2010. His confidence is based on the 10-20-year planning horizon of state entities involved in power generation.

Venter is not the only one optimistic about the sector's prospects after 2010. Investment bank Merrill Lynch says in the March 2007 edition of its SA Industrial Navigator that the public and private sectors "have become proactive in planning for growth beyond 2010".

The report says that Eskom and the Airports Company of SA have increased capital expenditure to accommodate an increase in forecast growth over the next five years.

Eskom plans to raise R100bn to fund additional capacity of 9 000 MW of power to the present 39 000 MW by April 2012.

The report says the increased capital expenditure is driven by a change in growth assumptions for electricity demand from 2,3%/year to 4%, coming into line with government's target of a 6% GDP growth rate from 2010 to 2014.

Merrill Lynch says the expansion plans include the return to service of three plants, upgrades of existing facilities, two new base-load stations, three pumped storage schemes and a nuclear power station.

The investment bank notes that spending on capital projects rose 15,5% in the fourth quarter of 2006 from 13% in the third quarter, while government spending showed an increase of 13% in the fourth quarter after reporting 11,5% growth in the third. Capital spending increased to 16,5% for the fourth quarter from 13,5% in the third.

Smaller companies also stand to gain from Eskom's expansion plans. AltX-listed Ansys hopes to sell its remote-measuring systems to the power utility to monitor conditions in its substations.

But it's not only the electrical engineering companies that are doing well.

The turnaround in the telecom sector is particularly good news for Reunert. Its operations in this sector have not done too well over the past few years. However, this has changed. Its telecom divisions revenue increased from R454m to R600m for the six months ended March 2007.

Reunert says Neotel, the second network operators should fuel demand for the products and services of Siemens Telecommunications (in which Reunert has a 40% holding) in future.

Smaller players in the sector, like fleet management systems provider DigiCore and vehicle electronic component maker Control Instruments, have also hit a purple patch.

DigiCore increased revenue 28% to R323,2m and pushed up net operating profit 64% to R93m for the year to end-March 2006. Control Instruments saw revenue surge 93% to R772m and operating profit jump from R30m to R81,3m for the year to end-December 2006.

SA electronic companies are not content to enjoy just the favourable local conditions and are becoming more internationally focused.

Altron wants to grow exports and revenue from foreign operations from 20% to 25% of total revenue. And even smallish companies like DigiCore and Control Instruments are now developing sizeable offshore businesses.

The sector may be performing well but the index cannot strictly be compared with the 2005 period since one of its largest companies, Altech, has moved from E&E to the mobile telecommunications sector of the JSE.

Altech, an Altron subsidiary, which had a R6bn market cap in March 2006, has seen it grow to over R7,1bn.

But it's not all plain sailing for companies in the sector. Reunert's empowerment deal with women's empowerment group Peutona led to a headline loss of 66,5c/share, from a profit of 232,6c/share, for the six months ended March 2007.

The R1,1bn deal has come in for some criticism because it led to four already well-established women - Cheryl Carolus, Wendy Lucas-Bull, Dolly Mokgatle and Thandi Orleyn - benefiting from it.

Reunert expects the consumer-market spending slowdown to continue to depress its consumer products segment in the short term.

This slowdown, however, is not expected to dent overall growth in the E&E sector.