Mi­nor buy, ma­jor pos­i­tive

Finweek English Edition - - COMPANIES & MARKETS -

A QUICK GLANCE at Digicore’s earn­ings and profit over the past eight years doesn’t in­spire much con­fi­dence. The group was hit by the slow­down mid­way through 2009 and its 2010 year-end num­bers show a fur­ther de­cline. But first im­pres­sions can be deceiving. The South African fleet man­age­ment and ve­hi­cle track­ing com­pany em­ployed a sound strat­egy by buy­ing Bri­tish-based fleet man­age­ment com­pany Mi­norPlanet while prices in the mar­ket were still de­pressed. Mi­norPlanet will give Digicore ac­cess to a sub­stan­tially big­ger cus­tomer base in Europe and Ire­land, plus the group’s in­tel­lec­tual prop­erty.

The ac­qui­si­tion is half the rea­son be­hind Digicore’s re­cent an­nounce­ment of a R90m rights of­fer for 30m new shares, which will com­mence in mid-Fe­bru­ary and be fully un­der­writ­ten by Al­lan Gray. The ac­qui­si­tion was ini­tially funded through work­ing capi- tal and R40m of the money raised will go to­ward re­plen­ish­ing the group’s cash store.

The re­main­der will be used to im­ple­ment an in­ter­nal lease book in its fleet di­vi­sion, which has un­til now re­lied on up­front pay­ments by clients. Fi­nan­cial di­rec­tor Fran­cois Schin­de­hutte says mar­ket de­mand is forc­ing it to change the way it does busi­ness but the pos­i­tive up­shot is that an­nu­ity in­come from fleets will in­crease sub­stan­tially over the next few years, mak­ing up for the ini­tial cap­i­tal out­lay. An­nu­ity in­come was 55% of to­tal group rev­enue in its full year to end-June 2010.

Digicore is a good cash generator and has a rel­a­tively mod­est amount of debt. The rea­son it de­cided on eq­uity fund­ing for the Mi­norPlanet deal is that it found fi­nan­cial in­sti­tu­tions still re­luc­tant to ex­tend loans. Schin­de­hutte says the com­pany will re­port some mar­ginal im­prove­ment to its

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