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.