The po­ten­tial is in the per­sonal de­tails — yours

Financial Mail - Investors Monthly - - Analysis - Larry Claasen

The com­pany for­mally called Foneworx has rung the changes. Since bring­ing in Cax­ton as a new share­holder in 2013, it has gone on to change its name to Cog­ni­tion, moved its list­ing from the AltX to the main board and taken hold­ings in three com­pa­nies.

Th­ese changes are part of a broader trans­for­ma­tion from a busi­ness that fo­cuses on pro­vid­ing tele­com-re­lated ser­vices to one that uses the data it col­lects to build pro­files of cus­tomers.

Be­fore the change, the group was best known for en­ter­tain­ment ser­vices like count­ing the votes on SMS-based com­pe­ti­tions and for busi­ness ser­vices like fax-to-email. It also pro­vides se­cure doc­u­ment man­age­ment and backup workspace for com­pa­nies re­cov­er­ing from a dis­as­ter.

But in run­ning some of th­ese ser­vices, it re­alised it was col­lect­ing a lot of in­for­ma­tion on con­sumers that was largely go­ing un­used. “We would gather the data but noth­ing would be done with it af­ter the pro­mo­tion had ended,” says Cog­ni­tion CEO Mark Smith.

This is chang­ing as this kind of data is in­creas­ingly seen as an as­set that can be used to drive growth. Cog­ni­tion, for in­stance, is able to tab­u­late in­for­ma­tion like the lo­ca­tion, age and gen­der of a con­sumer from var­i­ous sources, and then use it to tar­get pro­mo­tions specif­i­cally for that per­son.

Smith says a re­tailer, for ex­am­ple, which has an over­sup­ply of a par­tic­u­lar gar­ment would usu­ally have to cut its prices by a sig­nif­i­cant and pos­si­bly loss-mak­ing amount to move the stock.

But if the re­tailer knew more about its clients, in­clud­ing where they were lo­cated, and had a means to con­tact them, it would be able to send a dig­i­tal dis­count voucher specif­i­cally for this gar­ment to con­sumers who were near stores where this item was over­stocked. The ad­van­tage for the re­tailer is that it is able to pre­serve its mar­gins.

The chal­lenge for Cog­ni­tion is to col­lect this data and still com­ply with the Pro­tec­tion of Per­sonal In­for­ma­tion Act, which reg­u­lates the pro­cess­ing of per­sonal in­for­ma­tion. The act pre­vents the stor­ing of in­for­ma­tion be­yond a cer­tain time­frame and re­quires con­sumers to give spe­cific per­mis­sion for their in­for­ma­tion to be used.

Smith makes the point that Cog­ni­tion is care­ful in keep­ing within the law when it comes to how it col­lects and han­dles the pro­files of 10m-15m peo­ple it has so far com­piled.

To im­ple­ment the changes at the group, it has cre­ated a new di­vi­sion, Knowl­edge 350. The com­pa­nies it has taken hold­ings in — BMi Re­search, Liv­ing­facts and BMi Sport — have be­come part of Knowl­edge 350 and help carry out the shift as they have ex­per­tise in analysing and col­lect­ing data.

The group also got a boost from me­dia gi­ant Cax­ton tak­ing a 35% hold­ing in it. Th­ese shares were ini­tially held by Pri­me­dia founder Issie Kirsh and his son Wil­liam Kirsh but that deal fell apart and even­tu­ally led to Cax­ton tak­ing their hold­ing in May 2013.

De­spite its record of pro­duc­ing good re­sults, Cog­ni­tion lacked the scale to at­tract the at­ten­tion of in­sti­tu­tional in­vestors. Smith says this is chang­ing as the new strat­egy, Cax­ton’s in­volve­ment and the shift to the main board have at­tracted a lit­tle more at­ten­tion from in­sti­tu­tions.

With an­nual rev­enue now hit­ting R118m and a mar­ket cap of R330m, in­vestors can no longer claim the com­pany is too small.

It also has a habit of pay­ing hand­some div­i­dends. It in­creased its an­nual div­i­dend from 7c/share to 12c/share, giv­ing it a div­i­dend yield of 5%.

Its lat­est num­bers show it is able to change di­rec­tion with­out los­ing mo­men­tum. Though rev­enue was down 1,31% to R62,4m it still man­aged to in­crease profit af­ter tax 12% to R21,2m for the six months to end De­cem­ber.

With a PE of 11,42 at a share price of R2,40, there is still some up­side to it.

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