Solid performer OneLogix hits a bumpy patch
Until recently, OneLogix has been a very solid performer. A small logistics company operating in well-defined niches such as vehicle delivery, it has a special formula for acquiring new businesses while retaining its entrepreneurial talent and achieving a win-win situation for all. The group executive ensures that entrepreneurial capability is not smothered by big-corporate culture.
Unfortunately, it has fallen victim to the poor economic environment and that situation is unlikely to change any time soon. Revenue in the six months to end-November 2019 was flat at R1.453bn, while earnings before interest, taxation, depreciation and amortisation (ebitda) fell 8% to R206m.
Operating profit was 20% lower at R91.7m; pretax profit was 27% lower at R56.9m; the tax rate was a very low 18.5%, thanks to section 12H allowances relating to learnership allowances; headline earnings per share fell 24% to 20.1c; and the interim dividend was passed. While group earnings fell quite heavily, none of the 12 operating businesses made a loss.
The cross-border elements of the group took strain, particularly the abnormal logistics division. Operations slowed down noticeably due to the Durban port working inefficiently, mainly due to its historical location, which can get seriously clogged up with road traffic.
Primary Product Logistics had mixed results. OneLogix Jackson and OneLogix Buffelshoek performed well, thanks to their close links with the farming community, as these two typically carry fertiliser products, animal feed, seed, cement and tiles.
OneLogix Linehaul was forced to contend with a stagnant Southern African market. This division takes products into and back from the mines in this region and often struggles to fill trucks with return cargo, as many mines prefer to send their products to other ports in the region such as Beira in Mozambique due to capacity constraints in Durban.
On the positive side, there is a strong balance sheet, with lots of cash. The gearing ratio, excluding cash, is a low 27% and interest cover is a very high 13 times.
OneLogix’s biggest competitive advantage is its Umlaas Road development. This “dry port” is an inland intermodal terminal directly connected by road to Durban port, and it operates as a centre for the shipment of motor vehicles to inland destinations. Umlaas 3, the latest and largest element of Umlaas Road, should be completed by end-December 2020. The size of 80 rugby fields, this huge site offers parking bays for 20,000 light vehicles and 2,000 trucks and associated equipment.
Umlaas Road’s one-stopshop facility enables OneLogix to integrate into customer supply chains, as it takes care of vehicle deliveries coming from Durban port, performs forwarding and clearing, conducts pre-delivery inspection, prepares the vehicle for transportation and then finally delivers.
Economic conditions in SA and the rest of Southern Africa are unlikely to improve in the next year or so. In such a landscape, the foreseeable strategy is to concentrate on cost-cutting and efficiencies. The group is always looking for acquisitions, typically from internally generated cash, and wouldn’t be afraid of venturing into start-up businesses. SA and the rest of Southern Africa would be the first port of call for acquisitions. Management may look beyond those borders if a deal is compelling.
The share price has been in decline for the past 18 months, and at R2.80 now is at a 56% discount to its record high of R6.39 in February 2015. This stock, being a high-quality operation with dedicated and hands-on management, presents a conundrum for investors. On a price to earnings ratio of 10.7x, it is cheap, though not as cheap as many other small capitalisation stocks. And with the dividend having been passed, investors are not being rewarded for their patience.
At a market capitalisation of R680m, OneLogix must at this stage surely present a very tempting target for a large conglomerate or logistics company.