Mix­ing it up

Financial Mail - - MARKET WATCH - @mar­chasen­fuss

For me, the stand­out set of re­sults in the past fort­night is the ex­hil­a­rat­ing year to end-fe­bru­ary of­fer­ing from ve­hi­cle­track­ing and fleet-man­age­ment spe­cial­ist Car­track. But as im­pres­sive as the fi­nan­cial state­ments are — re­flect­ing strong cash flows, im­prov­ing mar­gins and ro­bust subscriber growth — Car­track has, be­lieve it or not, lagged its ri­val MIX Telem­at­ics on the JSE of late.

Car­track’s share price has ac­cel­er­ated 61% over a year, 30% over a six­month dis­tance and has pretty much idled along for the past three months.

By con­trast, Mix’s share price has rock­eted 147% over a year, 47% over six months and 36% over three months.

MIX re­cently de­clared the strong­est quar­ter (to end-de­cem­ber) in its history. Like Car­track, its subscriber growth is com­pelling, with 21% year-on-year sub­scrip­tion rev­enue growth on a con­stant cur­rency ba­sis as well as al­most

25,000 net new sub­scribers. MIX also de­liv­ered record ad­justed earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­sa­tion of R115m at a mar­gin of close to 26%. Its long-term mar­gin target of 30% looks eas­ily achiev­able.

Of course, one must also not lose sight of the fact that MIX pulled an aw­fully smart move two years ago when it em­barked on a large, spe­cific share re­pur­chase ex­er­cise. In short, it bought back the 25.33% stake or roughly 201m shares owned by mo­bil­ity con­glom­er­ate Im­pe­rial Hold­ings. MIX forked out R474m to Im­pe­rial, ef­fec­tively pay­ing 236c/share.

At that point Mix’s enig­matic CEO Joss Joselowitz noted: “At cur­rent valu­a­tion levels for MIX shares, we can see no bet­ter ac­qui­si­tion op­por­tu­nity than in­vest­ing in our own busi­ness. We ex­pect that this trans­ac­tion will be earn­ings and value ac­cre­tive for share­hold­ers and view this as an ex­cel­lent use of our cash.”

Joselowitz was not wrong. Mix’s shares now trun­dle along mer­rily at more than 800c on the JSE.

I can’t help but won­der whether there isn’t a fan­tas­tic deal to be made be­tween MIX and Car­track. I con­cede that the merg­ing of the SA busi­nesses would face com­pe­ti­tion is­sues. And both have plenty of or­ganic growth op­por­tu­ni­ties on their plates. But is there a pos­si­bil­ity of a merger of the global oper­a­tions, with each hold­ing a ma­jor stake in an en­larged in­ter­na­tional busi­ness? Such a busi­ness would have crit­i­cal mass in key mar­kets, be more com­pet­i­tive and al­low for shared tech­nol­ogy ad­vances. It might also find sup­port for a list­ing on a global bourse.

A po­ten­tial hitch: two strong per­son­al­i­ties (Joselowitz and Car­track’s Zak Cal­isto) and whether there is a boardroom big enough to ac­com­mo­date both these giants of the telem­at­ics in­dus­try. Any­way, just a thought . . .

Go­ing hos­tile

I see in­vestor counter RECM & Cal­i­bre (RAC)* chose to in­form the mar­ket that it has bumped up its stake in global in­vest­ment ve­hi­cle As­to­ria from the pre­vi­ously an­nounced 28.56% to 28.72%.

Big deal, you might say. But RAC re­it­er­ated that it is cur­rently as­sess­ing its op­tions in re­la­tion to un­lock­ing value from its in­vest­ment in As­to­ria. Gut feel is that As­to­ria’s struc­ture in no way fits RAC’S deep-value ap­proach. Pre­sum­ably “op­tions” would in­clude liq­ui­dat­ing the heav­ily dis­counted port­fo­lio and build­ing a less main­stream one.

Mar­ket watch­ers, though, have warned that chang­ing the in­vest­ment man­date (by re­mov­ing as­set man­ager An­chor) comes with a rather costly poi­son pill, pos­si­bly as high as R90m. The next few months should be in­trigu­ing.

An in­ter­na­tional Mix­car­track busi­ness would have crit­i­cal mass, be more com­pet­i­tive and al­low for shared tech­nol­ogy ad­vances

(Sub)prime rat­ing

Doesn’t the mar­ket just love the hu­man re­sourc­ing sec­tor? Prime­serv’s trad­ing up­date for the year to end-march puts head­line earn­ings at 22c-23c/share. The com­pany at last count was bid 55c and of­fered at 65c on the JSE, mean­ing a for­ward earn­ings mul­ti­ple of about three. Three, peo­ple!

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