Dol­lar earn­ings and de­pend­able growth

Financial Mail - Investors Monthly - - Analysis - Larry Claasen

For a com­pany that makes a lot of its money in US dol­lars, MiX Telem­at­ics is oddly mute when sell­ing it­self as a rand hedge.

The ve­hi­cle track­ing and fleet man­age­ment group has been mak­ing in­roads into the US mar­ket over the past few years but it is not over­selling its ob­vi­ous ex­change rate ad­van­tage.

MiX Telem­at­ics made R166m (US$13.7m) in rev­enue from its Amer­i­can op­er­a­tions for the year to end March 2015. This fig­ure was boosted by the av­er­age rand value drop­ping from R10.12/$ to R11.06/$ when com­pared to the cor­re­spond­ing year.

Given the un­cer­tain eco­nomic out­look in SA, punt­ing the group on its ex­po­sure to hard-cur­rency earn­ings would have been an easy sell.

But on a re­cent con­fer­ence call to dis­cuss its num­bers for the third quar­ter to end De­cem­ber, the cur­rency ad­van­tage hardly got a men­tion from CEO Ste­fan “Jos” Joselowitz. And when he did talk about it, it was to say how it neg­a­tively af­fected the SA econ­omy. Joselowitz in­stead fo­cused on its strat­egy of pro­vid­ing fleet so­lu­tions to large com­pa­nies, es­pe­cially those in the oil sec­tor. Though low oil prices have knocked the en­ergy sec­tor, MiX Telem­at­ics has main­tained its growth for the quar­ter. Rev­enue was up 7.7% to R378.6m ($24.4m) and profit was up to R57.9m ($3.7m), from R31.9m ($2.1m).

This strat­egy is pay­ing off. It won a con­tract to pro­vide fleet man­age­ment, safety and com­pli­ance ser­vices to Hous­ton-based en­ergy group Hal­libur­ton’s fleet of more than 15,000 ve­hi­cles.

The deal is a big one be­cause not only is Hal­libur­ton ranked fifth-largest on Trans­port Topics’ top 100 pri­vate car­ri­ers list, its fleet will in­crease if its merger with Baker Hughes goes ahead.

This deal was fol­lowed by three large bus op­er­a­tors in Brazil — São Gonçalo Group, Triecom/Trec­tur and Ex­presso Ita­ma­racá — sign­ing up as clients, bring­ing a fur­ther 400 ve­hi­cles as sub­scribers.

Deals like these are the rea­son MiX Telem­at­ics now has more than 550,000 sub­scribers in more than 120 coun­tries. Joselowitz says the group is well po­si­tioned to take care of multi­na­tion­als which op­er­ate across dif­fer­ent re­gions be­cause they are more keen to deal with a sin­gle com­pany than with dozens in dif­fer­ent coun­tries.

The group is also get­ting a boost from a change in reg­u­la­tions in the US. The man­age­ment of fleets has to move away from man­ual pa­per logs filled in by hand to an elec­tronic track­ing for­mat.

Joselowitz is con­vinced this change will open up more op­por­tu­ni­ties: “We have decades of ex­pe­ri­ence in this do­main and have sev­eral ini­tia­tives un­der way to cap­i­talise on this op­por­tu­nity.”

Though the group sees a big part of its fu­ture in the Amer­i­cas, Joselowitz points out that de­spite the un­ease in the SA econ­omy, Africa is still an im­por­tant mar­ket. “Africa rep­re­sents over half of our busi­ness. It re­mains our most prof­itable re­gion de­spite the head­winds we face.”

The re­sults for the quar­ter were re­spectable but this should not come as a sur­prise as MiX Telem­at­ics has never been a com­pany that pro­duces yo-yoing num­bers.

In fact, one of its most no­tice­able fea­tures has been how it con­sis­tently comes out with earn­ings growth in the mid to high teens — if not higher.

Over the years, per­for­mances like these have driven its share price up. It shot up from R3.20 in early July 2013 to dou­ble its value to R6.50 in Au­gust 2013.

But even though it has con­tin­ued to pro­duce solid num­bers, in­vestors have lost in­ter­est over the past few years. Its share price is down about 30% on what it was a year ago and 17% since the be­gin­ning of this year. Look­ing at its cur­rent val­u­a­tion, the as­set track­ing group looks like a buy with a PE of 7.93 and share price of R2.31.

Share­hold­ers should also be well sat­is­fied that it has a re­spectable div­i­dend yield of 6.09%.

The group’s share price might be down but in the US, where it is listed on the Nas­daq, it is get­ting fans. Zacks In­vest­ment Re­search, which com­piles bro­ker­age rec­om­men­da­tions, re­ports that one bro­ker said it was a buy and two said it was strong buy.

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