Cartrack’s local market revs up profit margin

Vehicle-tracking and fleet-management specialist Cartrack is one of the few JSE-listed counters that can boldly predict double-digit bottomline growth for the foreseeable future.

What stands out in the latest year to end-February results is that the core market in SA is still firing on all cylinders — and there are still plenty of growth opportunities to snag.

A divisional breakdown showed the South African operations churning R981m in revenue, a sprightly gain over the R861m recorded in the 2017 financial year.

But what is impressive is the margin achieved by Cartrack’s local core. The gross profit margin was 81% and operating profit margin topped 38%, which are two reassuring figures when considering the company’s determination (and recent successes) in finding new growth niches in the local market.

Africa still looks compelling, with revenue of R105m converted to profits on gross and operating margins of 86% and 30%, respectively, (the latter dropping in line with costs incurred in improving operational structures).

Overall, the impressive cash conversion ratio and increased annuity income flows from Cartrack’s fast-growing subscriber base offer a tangible underpin to directors’ double-digit growth forecasts. But there is a slight downside. With so many opportunities to chase, it seems Cartrack will have to put the brakes on its generous dividend policy.

The dividend policy has targeted cover of between 1.25 times and 2.5 times headline earnings. The investor presentation notes that significant growth opportunities require a revised dividend policy. This may prompt a change in the target cover to between two and four times headline earnings in the next financial year.

As retail-led healthcare group Clicks enters its 50th year, the company has much to celebrate. But it must also reflect on how its strategy will carry it successfully into the next half-century.

Musica remains the albatross around Clicks’s neck.

The noncore asset, which was acquired in 1992, has been struggling to keep up growth numbers. Musica sales for the full year in 2017 declined by 7% year on year.

In the most recent half-year results, the group reported Musica’s sales dropped 6.4%, but maintained that all Musica stores remained profitable.

While CEO David Kneale insists Musica is still a profitable business that creates value for shareholders, many futurists would argue there is little value to be found in the outdated business of CDs and DVDs.

“We are really the last man standing in that business,” Kneale said.

“We have seen double-digit growth in the headphones and speaker lines sold in Musica stores,” he added.

But some analysts reckon, Clicks, like Edcon in the case of CNA, is merely waiting for the right buyer to come along with the right offer.

Clicks has a 22.2% share of the retail pharmacy market and aims to grow this to 30% in the long term.

Its health and beauty business continues to enjoy strong growth due to promotions such as its well-known “3 for 2” promotion and its loyalty programme, which has more than 7-million active users.

Perhaps this is where the retailer needs to focus its energy and let go of the nostalgia attached to its 113 music stores.