THREATS TO THE VALUATION
The company, and other road freight businesses, compete directly with the likes of Transnet in moving cars between manufacturing plants and ports. By the company’s calculation, 30%- 40% of the country’s motorcar inventory over the last 15 years has been shipped by rail. If this were to increase, it would present a material threat to the business model of OneLogix.
The more new cars that are sold domestically, the better business is for OneLogix. Reported market sales by Naamsa (National Association of Automobile Manufacturers of South Africa), the motor manufacturing industry body, saw vehicle sales (excluding busses) rising by approximately 3% in 2013, but reported vehicles sales for January 2014 were some 7% lower than the same period last year. This has led some manufacturers to forecast a decline in vehicles sales for 2014, which will act as a headwind for the company. Earnings growth will have to rely on the company winning market share (or acquiring it), as cost savings in the current environment look highly unlikely.
What will support earnings is the fact that the company bought back 10% of its issued share capital from its BEE partners (after the close of the reporting period). The shares have subsequently been cancelled, which means fewer shares for the future calculation of HEPS going forward, but the company will lose points on its BEE rating. This can’t persist for long.