No midlife crisis for CMH

Growing up as I did near the ceaseless rumble of the Volkswagen factory and amid the Eastern Cape’s automotive belt, I might have been expected to have a passion for cars.

Hardly ... though back in the early 1980s I can remember the bottom-ofthe-belly thrill of racing off in a Golf GTi (that my pal Paul Schaberg had sneaked out of his parents’ driveway).

When it comes to cars, I prefer reliability over performance. My “fleet” has, consequently, been dead boring, though I appear to have now broken slightly with habit when making the grudge purchase of a replacement car.

With value-for-money being my prime driver, I opted for a racy little Honda Jazz Sport — which my kids have dubbed the “Bellville Jazz”. It comes with some aerodynamic accoutrements front and back as well as racing pedals and some nasty black mag wheels. In jazz parlance, it’s far more the gaudy flash of Al Di Meola than the zen restraint of John McLaughlin.

On first seeing the vehicle, my wife muttered, aghast: “My love, why not just have a full-blown midlife crisis?” The sporty little vehicle does, though, go like the clappers, and the school run now verges on enjoyable (after weeks of traversing the narrow confines of the southern suburbs school belt in a cumbersome but beloved Colt bakkie).

Taking delivery of my sporty steed coincided with the release of the results of Combined Motor Holdings (CMH), to whose coffers I contributed generously when I had to rent a car for a few days.

CMH is one of the most successful graduates of the new-listings class of 1987, whose alumni count enduring and rewarding small caps including Bowler Metcalf, Spur Corp, Sasfin and NuWorld. I thought CMH steered prudently through Covid, and the market (which has revved the share price in the past week or so) seems to agree wholeheartedly.

In June last year, when Covid was just starting to rage in SA, CMH trundled down to under R10 on the JSE. The share has since doubled, offering a lesson in why punters should not be fearful of backing great small-cap companies in terrible times. CMH finished its financial year to end-February with revenue down 23% to R8.6bn and net profit down 11% to R169m. This is a heartening progression down the income statement, underlining that long-serving CMH CEO Jebb McIntosh runs a very tight corporate workshop.

Remarkable figures

One also has to contextualise this performance by noting that CMH’s vehicle sales were stalled for a long time last year, when licensing departments and testing stations were closed for 77 days. Bearing in mind that there was a small interim loss, CMH managed a remarkable R183m in earnings in the second half of the financial year.

Even more reassuring was its cash generation, which has left CMH’s cash pile at R755m. This equates to more than R10 a share, and should placate any shareholders who argue that CMH erred in paying a 125c a share dividend.

I assume there was serious pent-up demand for new (and used) vehicles, with the motor retail division recording more than R200m in profit before tax — against R150m the previous year.

While car hire is a relatively small portion of CMH, this segment operates on a much fatter margin and is thus an important profit engine.

In the past financial year sales more than halved to R242m and operating profit slowed to just R29m. With the business largely dependent on business and leisure travel, the Covid restrictions have been catastrophic.

But the rental fleet has been rightsized, and (more importantly) a profit on the re-sale of excess fleet vehicles was achieved. CMH seems to be banking on a rebound in domestic travel to boost its numbers. It has also been less drastic in its fleet cuts, which might mean a chance to build the First Car Rental brand and win market share, adding a dash to long-term profits.

On first seeing the vehicle my wife muttered, aghast: ‘My love, why not just have a full-blown midlife crisis?’