Making tracks
There was no shortage of enthusiasm for the recently released firstquarter numbers from fleet management and vehicle-tracking specialist MIX Telematics from Us-based analysts who participated in the investment presentation last week.
Whether many local analysts share this upbeat sentiment is not discernible. I did not hear any familiar voices of local investors during the question session after Mix’s presentation.
MIX has a primary listing on the JSE that came about from an unbundling out of automotive components group Control Instruments. It also has American depositary shares listed on the New York Stock Exchange (NYSE).
Pitching depositary shares to US (and international) investors is smart, as Mix’s “homegrown” tracking business has rapidly evolved into a compelling global technology offering. International customers include Schlumberger, Halliburton, Praxair, DHL, Baker Hughes and Linde.
Judging by the pointed questions at last week’s presentation, US analysts “get” Mix’s business model. I’m not sure local investors pay quite as much attention. As such the relevance of, dare I say, a stultifying JSE listing has been increasingly questioned.
MIX CEO Stefan Joselowitz revealed his tacit backing of a single listing on an international bourse (most likely the NYSE or Nasdaq) when he noted several hassles associated with maintaining a dual listing. He tellingly added: “If I had a magic wand I would structure the business to potentially have a single listing . . . and potentially in the US.”
Obviously this will not happen overnight — but it is an exercise that MIX will need to undertake eventually if it is serious about addressing the value lag in its share price.
In its investment presentation MIX pointed out that its global competitors enjoy far stronger market ratings. On an embedded value to revenue model, MIX is rated on a 1.3 times multiple, compared with 3.8 times for Trimble, 4.2 for Orbcomm, 2.1 for Calamp Corp and six times for Quartix Holdings. On an embedded value to earnings before interest, tax, depreciation and amortisation (Ebitda) basis, MIX sits at less than six times, well behind the 19.6 times for Trimble, 17 for Orbcomm, 13.7 for Calamp and more than 20 times for Quartix.
Joselowitz referred to Mix’s shares as being “significantly undervalued”, adding that the best possible use for the company’s capital at this juncture is to repurchase its own stock. There remains plenty of scope to pursue such an exercise. He also discounted the possibility of MIX hitting the acquisition trail, stressing that the company is “awash with organic [growth] opportunities”.
A small cap to keep an eye on
I note that MIX forecasts subscription revenue in the financial year ahead to increase by a sprightly 13.8%, in line with the long-term goal of double-digit growth in the top line. More important is that subscription revenue is expected to comprise 86% of total revenue in the 2018 financial year, providing a reassuring cash flow underpin. Add to that the fact that Ebitda margins are expected to fatten from just under 20% to closer to 23%, and MIX is looking to be a fairly nifty little contender with rand hedge attributes.
Significantly, the quarterly dividend was hiked from 2c to 2.5c in the quarter to end-june, underlining Joselowitz’s contention that MIX has reached an “inflection point” with regard to margin accretion and is moving out of a heavy investment cycle into a phase in which it will start enjoying returns on earlier investments. Though the share price has enjoyed a recent spurt, MIX is still a small cap worth keeping a close eye on in the months ahead.
I have to wonder whether Mix’s illustrious global rivals — and perhaps even feisty local player Cartrack Holdings, which recently established a foothold in the US — are not tracking developments at MIX with more than a passing interest. If there is potential for corporate action, I reckon things will unfold sooner rather than later. I doubt MIX shares will be idling along at these levels at the same time next year.
MIX is looking to be a fairly nifty little contender with rand hedge attributes