Cartrack rating looks modest for fast grower
Over the past five months Cartrack has decelerated from its endFebruary high of R21.45.
On Tuesday the share briefly dipped under R14 before revving back up to R16.75. The market rating, however, still remains modest for such a fast-growing and cash-generative contender, the share price reflecting a trailing earnings multiple of about 16.7 times and offering a fair yield of 2.75%.
Over the past five years, the fleet-management and vehicletracking specialist has managed an enviable compound five-year subscriber base growth of 21% and compound five-year subscription revenue growth of 26%. More reassuring, annuity income makes up 88% of total revenue. Cash conversion has been good, while product development and innovation have also been impressive.
Why then is there even the slightest trepidation in the market? Possibly, the overriding cynicism in the market around small- to mid-cap companies has got investors interrogating every line in the recently released annual report.
If there is anything to rattle shareholders it might be the statement in the chief financial officer’s report that Cartrack plans to invest more heavily in research and development, data analytical skills and distribution channels to expand and grow the subscriber base.
The increased sales are expected to comprise mainly rental contracts, which will require funding. In short, the group’s strong operating cash flows will be re-invested at an increasing rate.
That has prompted a revisiting of the dividend policy for financial 2019 to a target cover of two to four times headline earnings compared to the previous metric of 1.25 and 2.5 times.
Possibly, punters able to live with Cartrack’s stingier payout policy might lock into a markedly bigger payout number in the longer term.
Stanlib is serious about its turnaround. So serious, that the Liberty-owned asset manager has bagged top international talent to make it happen. Briton Mark Lovett is a heavy hitter.
His most recent post was as head of equities at a R5-trillionin-assets fund manager. He likes a challenge, which is why he has taken on the role of investment chief at an asset manager where earnings and investment performance have gone backwards.
Mind you, perhaps a R600bn-in-assets fund manager is not as daunting a prospect as his previous employer, where he was also involved in a turnaround. Still, Lovett faces no small task. Stanlib’s plight is made worse by the fact that Liberty has also had a torrid few years, with earnings halving from 2015 to 2017.
Analysts and investors will be searching for clues of a David Munro-driven turnaround when the insurance group posts interim results on Thursday.
Munro, who headed Standard Bank’s corporate and investment banking unit, was parachuted in by the banking group (Liberty’s majority shareholder) in June 2017 to right the ship. While Munro has said real performance can be expected only in 2019-2020, the pressure will still be on Lovett.
No wonder Munro and Standard Bank Group CEO Sim Tshabalala both interviewed him. Evidently, they think he is up to the challenge.