Car­track, Digi­core and Mix Telem­at­ics

Financial Mail - Investors Monthly - - Contents - Marc Hasenfuss

CAR­TRACK Share price: 980c JSE code: CTK

BUY IT MIGHT BE RE­GARDED AS A BRAZEN call to tag a newly listed com­pany as a buy, but Car­track Hold­ings sends out all the right sig­nals. Top-line growth is not only sprightly but gets whit­tled down to the bot­tom line at a well re­in­forced net profit mar­gin of close to 25%.

Al­most three quar­ters of Car­track’s turnover is re­cur­ring an­nu­ity rev­enue from a sturdy client base of 386 581 units, and 429 529 units fore­cast for the 2015 fi­nan­cial year.

The push into mar­kets out­side SA seems to be care­fully con­tem­plated, and the chance seems very re­mote that Car­track will speed wildly af­ter mar­ket share in off­shore ter­ri­to­ries.

If it does press on out­side SA then IM hopes it keeps scan­ning for African mar­ket share where the op­er­at­ing mar­gins are at­trac­tive (com­pared to a com­pet­i­tive Euro­pean mar­ket).

Earn­ings of 63c/share have been pen­cilled in for the year to end-Fe­bru­ary 2015, and with strong cash flows and neg­li­gi­ble debt the div­i­dend should be sump­tu­ous, con­sid­er­ing there’s a div­i­dend pol­icy of cov­er­ing pay­outs only 1,25 to 1,55 times by earn­ings.

Ve­hi­cle track­ing firms gen­er­ally are a wor­thy seg­ment of the JSE. But Car­track is a lit­tle ahead of the pack, look­ing like the most stream­lined ve­hi­cle track­ing share to ride in for the months ahead.

The share has flat-lined around 940c since list­ing late last year, but briefly dipped to a low of 850c ear­lier this month.

At 900c there is some short-term mileage in Car­track.

DIGI­CORE Share price: 280c JSE code: DGC

HOLD IN LESS THAN SIX MONTHS THIS ve­hi­cle-track­ing spe­cial­ist has gone from 180c to 280c — a gain of over 50%. The share, ear­lier this year, even peaked briefly at 318c. It seems Digi­Core, which lost its way for a few years, is back on the radar of the in­vest­ment com­mu­nity.

It’s not only op­er­a­tional im­prove­ments that are reignit­ing sen­ti­ment, but also the pos­si­bil­ity of cor­po­rate ma­noeu­vrings. A large slab of Digi­Core shares was re­cently hus­tled into re­tail ty­coon Christo Wiese’s new in­vest­ment ve­hi­cle, Con­vergeNet.

Op­er­a­tionally, Digi­Core com­pleted a com­pre­hen­sive shake-up of op­er­a­tions in the year to end June, push­ing through a slew of one-off charges and im­pair­ments. The key in­di­ca­tor, how­ever, was that net op­er­at­ing cash flow of al­most R150m was gen­er­ated for the year, which equates to around 60c/share.

The com­pany’s big brand, C-Track, looks re­freshed and has a num­ber of promis­ing part­ner­ships un­der way to boost in­stal­la­tions. Af­ter such a stren­u­ous turn­around process, Digi­Core might un­der­stand­ably pro­ceed cau­tiously along the growth path.

At the cur­rent price the mar­ket seems to think Digi­Core can fairly quickly achieve earn­ings of 35c/share, a level last seen in 2009. IM thinks Digi­Core — its re­la­tion­ship with Con­vergeNet not en­tirely clear yet — may hover at th­ese lev­els even af­ter the re­lease of in­terim re­sults, which makes the share a hold for now.

MIX TELEM­AT­ICS Share price: 280c JSE code: MIX

SELL IT’S A SOME­WHAT RE­LUC­TANT ap­pli­ca­tion of a sell tag, es­pe­cially for a counter that has been un­der per­sis­tent down­ward pres­sure since late Fe­bru­ary 2014, when the share en­joyed a 12-month peak at 570c. But it does seem that MiX’s size­able off­shore pres­ence counts against it at this stage.

While most off­shore mar­kets have grown markedly in sub­scriber num­bers, there is se­ri­ous com­pe­ti­tion abroad, and at the in­terim stage only Europe was marginally prof­itable. Most dis­ap­point­ing (per­haps even alarm­ing) was that Australia and the Mid­dle East — the big­gest mar­ket out­side Africa — slipped into the red. The com­pany has of­fered earn­ings guid­ance of 12c/share to 13,5c/share for the year to end-March 2015, putting the share price on what might be con­strued as a rel­a­tively de­mand­ing for­ward earn­ings mul­ti­ple of over 20 times. Still, there’s plenty of rea­son to watch MiX’s share price with a view to ac­cu­mu­lat­ing scrip on fur­ther price weak­ness.

The com­pany has some se­ri­ous in­tel­lec­tual cap­i­tal on the prod­uct devel­op­ment, cash flows are steady and the cash bal­ance is re­as­sur­ingly close to R850m. It would not be pru­dent to dis­count the chances of tech-savvy MiX es­tab­lish­ing prof­itable niches in large in­ter­na­tional ju­ris­dic­tions.

But a watch-and-wait strat­egy might serve in­vestors best for now. A good time to re­assess would be af­ter the re­lease of full-year num­bers in June.


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