Altron’s Netstar is back in the game
Idiscovered last week that, despite my mostly stoic nature, I really don’t like to be tracked, trolled and tethered. What was supposed to be a premium saving insurance product switch is now getting to be one huge haul-ache. When I drive my wife’s car, I am under strict instructions not to break any speed limits — lest the monitoring device picks up a transgression and we are docked points off our reward scheme. My wife tends to get fixated with such things. Every trip is checked. Every point-docking episode interrogated. I can deal with a reprimand or three — it’s the speed that’s killing me.
Maybe 25 years ago I could have idled out of Kommetjie at a pastoral pace of 60km. The old village, however, has changed. Some of the newer inhabitants have not yet gained the mellow disposition that comes from many years of drawing in kelpified air. So, as I wend my way slowly along Kommetjie Road I have all manner of high-revving SUVs right on my tail with ferocious and precocious drivers gesticulating furiously. Clearly spin class waits for no man!
Even worse was Boyes Drive, above Kalk Bay, at 7am. My daughter noted with some alarm a procession of cars stuck behind us, slid right down in her seat and pulled her hoodie over her head.
The payback for this pedestrian pace had better be rich
Positive steps
Speaking of monitoring vehicles, Altron shareholders might have been encouraged by some of the signals emanating from vehicle tracking and fleet management business Netstar.
In the six months to end-August, Netstar’s revenue improved 12% to R1bn “with subscribers growing at an industry-leading rate of 26% to 1.5-million”.
Netstar gained market share, with Altron indicating that higher-margin enterprise customers increased 13% and consumer customers grew 8%. The business also improved customer churn to 16%, down from 22% at the 2023 financial year-end.
At the end of the previous financial year Netstar was fitting one car every four minutes. Now it fits four cars every minute, with the important pre-fitment growing markedly from 32% at year-end to 66%. Not surprisingly, more than 80% of the total subscription growth for the 2023 financial year was added in the first half of 2024.
The performance translated through to the more important lower rungs of the income statement, with interim earnings before interest, tax, depreciation and amortisation up 21% to R364m and operating profit growing 9% to R101m.
But some perspective is needed here. Encouraging as the numbers are, these are just the first few steps on the journey to restore Netstar to its former glory and perhaps build a more imposing entity that can sustain a standalone listing on the JSE or another international bourse.
The market share gains and business overhaul, while impressive, have come at the cost of margins.
The current hefty investment cycle is, of course, necessary to put a lagging Netstar on a more aggressive growth course. Still, seeing the operating margin dipping below 10% might be disconcerting to some investors. That margin is not only a third of what Altron achieved in 2012 but also a third of rival Cartrack’s.
Altron has set a medium-term goal of restoring margins to 16% — a level last achieved in 2019. If it’s reasonable to assume a midterm revenue line of about R2.2bn for the 2024 financial year, a 16% margin would infer an operating profit of about R350m. While that’s a fair number, Netstar might still require a dash of inspired corporate action to build the operational scale and technology to shift beyond the competitive South African market.
On to much smaller matters, ISA Holdings — a genuine, but enduring, micro-cap involved in technology security — paid out all its 7.7c a share headline earnings as a dividend for the six months to end-August. The share now yields close to 12% on a forward earnings multiple of under 10.
It wasn’t too many years ago that ISA was at the crossroads when its vendor licence agreements were unceremoniously crumpled up. This has been an inspiring reinvention of a cash-generative business model, and the dividend declaration displays confidence for the second half. One issue is the markedly higher trade receivable and trade payable balances of R17m and R20m respectively. These are both sizeable for a business with annual revenues of less than R80m.
But CEO and founder Clifford Katz is not overly concerned. He cites customer deals and supplier settlement timing as well as product mix for these elevated levels “as opposed to any fundamental change in cash management practices of the business”. I hope so. No long-standing shareholder would want that full-year dividend payout stanched.