DIGI­CORE

Finweek English Edition - - HOUSE VIEW - BY WAR­REN DICK

WHAT HAD pre­vi­ously been re­garded as an­other promis­ing c o mpany c o n s i g n e d to the scrapheap of f ail­ure, Digi­core Hold­ings has re­vived it­self to re­turn to the pur­suit of com­mer­cially ex­ploit­ing its ve­hi­cle track­ing and fleet man­age­ment tech­nolo­gies. This i s, af­ter all, the com­pany Dis­cov­ery Hold­ings se­lected as its tech­nol­ogy part­ner for its Dis­cov­ery In­sure busi­ness.

Digi­core’s man­age­ment of its cur­rent as­sets (pre­vi­ously a source of much pain) con­tin­ues to im­prove and they are now well within the lim­its of what’s con­sid­ered ac­cept­able. In­ven­tory days fell to 82.6 from 87.2 in the prior cor­re­spond­ing pe­riod, while re­ceiv­ables con­sol­i­dated at 76.8 days.

Rev­enue ad­vanced 5. 3% to R450m, solely on the back of growth i n t he s tol en ve­hi­cle re­sponse (SVR) unit, which now ac­counts for 50% of group rev­enue and which saw a 27% in­crease in an­nu­ity i ncome. Rev­enue from i nternational op­er­a­tions (which makes up one-third of the to­tal) did not grow. But this is not en­tirely ac­cu­rate. Some busi­nesses were closed down dur­ing the pe­riod (im­ply­ing there was growth). But more i mpor­tantly, the di­vi­sion swung f rom a l oss to a R7.5m op­er­at­ing profit.

The net ef­fect of more an­nu­ity in­come from the SVR di­vi­sion could be seen on gross mar­gins, which fell f rom 72% to 66% of rev­enue. Con­se­quently, gross profit de­clined by 3.5% to R297m. With a lower de­pre­ci­a­tion charge and fur­ther cost- cut­ting mea­sures, the net ef­fect saw HEPS ad­vance 14% to 9.37 cents.

So, a suc­cess­ful re­sus­ci­ta­tion has been per­formed. The busi­ness and the bal­ance sheet are i n good shape, and in­vestors would now like to see profit growth as a re­sult of sub­stan­tial top- l i ne growth ( i n rev­enues). With the share price at R3.05 at the time of writ­ing, the im­pli­ca­tion is the busi­ness is trad­ing on a for­ward P/E ra­tio of about 15 times, which I think is prob­a­bly a lit­tle bit over­done.

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