BUY, HOLD, SELL

Cartrack, Digicore and Mix Telematics

CARTRACK Share price: 980c JSE code: CTK

BUY IT MIGHT BE REGARDED AS A BRAZEN call to tag a newly listed company as a buy, but Cartrack Holdings sends out all the right signals. Top-line growth is not only sprightly but gets whittled down to the bottom line at a well reinforced net profit margin of close to 25%.

Almost three quarters of Cartrack’s turnover is recurring annuity revenue from a sturdy client base of 386 581 units, and 429 529 units forecast for the 2015 financial year.

The push into markets outside SA seems to be carefully contemplated, and the chance seems very remote that Cartrack will speed wildly after market share in offshore territories.

If it does press on outside SA then IM hopes it keeps scanning for African market share where the operating margins are attractive (compared to a competitive European market).

Earnings of 63c/share have been pencilled in for the year to end-February 2015, and with strong cash flows and negligible debt the dividend should be sumptuous, considering there’s a dividend policy of covering payouts only 1,25 to 1,55 times by earnings.

Vehicle tracking firms generally are a worthy segment of the JSE. But Cartrack is a little ahead of the pack, looking like the most streamlined vehicle tracking share to ride in for the months ahead.

The share has flat-lined around 940c since listing late last year, but briefly dipped to a low of 850c earlier this month.

At 900c there is some short-term mileage in Cartrack.

DIGICORE Share price: 280c JSE code: DGC

HOLD IN LESS THAN SIX MONTHS THIS vehicle-tracking specialist has gone from 180c to 280c — a gain of over 50%. The share, earlier this year, even peaked briefly at 318c. It seems DigiCore, which lost its way for a few years, is back on the radar of the investment community.

It’s not only operational improvements that are reigniting sentiment, but also the possibility of corporate manoeuvrings. A large slab of DigiCore shares was recently hustled into retail tycoon Christo Wiese’s new investment vehicle, ConvergeNet.

Operationally, DigiCore completed a comprehensive shake-up of operations in the year to end June, pushing through a slew of one-off charges and impairments. The key indicator, however, was that net operating cash flow of almost R150m was generated for the year, which equates to around 60c/share.

The company’s big brand, C-Track, looks refreshed and has a number of promising partnerships under way to boost installations. After such a strenuous turnaround process, DigiCore might understandably proceed cautiously along the growth path.

At the current price the market seems to think DigiCore can fairly quickly achieve earnings of 35c/share, a level last seen in 2009. IM thinks DigiCore — its relationship with ConvergeNet not entirely clear yet — may hover at these levels even after the release of interim results, which makes the share a hold for now.

MIX TELEMATICS Share price: 280c JSE code: MIX

SELL IT’S A SOMEWHAT RELUCTANT application of a sell tag, especially for a counter that has been under persistent downward pressure since late February 2014, when the share enjoyed a 12-month peak at 570c. But it does seem that MiX’s sizeable offshore presence counts against it at this stage.

While most offshore markets have grown markedly in subscriber numbers, there is serious competition abroad, and at the interim stage only Europe was marginally profitable. Most disappointing (perhaps even alarming) was that Australia and the Middle East — the biggest market outside Africa — slipped into the red. The company has offered earnings guidance of 12c/share to 13,5c/share for the year to end-March 2015, putting the share price on what might be construed as a relatively demanding forward earnings multiple of over 20 times. Still, there’s plenty of reason to watch MiX’s share price with a view to accumulating scrip on further price weakness.

The company has some serious intellectual capital on the product development, cash flows are steady and the cash balance is reassuringly close to R850m. It would not be prudent to discount the chances of tech-savvy MiX establishing profitable niches in large international jurisdictions.

But a watch-and-wait strategy might serve investors best for now. A good time to reassess would be after the release of full-year numbers in June.

Picture: THINKSTOCK