Roaring ahead
In a market that is slow to applaud companies making valiant operational and strategic progress in dour trading conditions, it is heart-warming to see that the share price of vehicle tracking specialist Cartrack has accelerated more than 35% over the past six months. This is quite a comeback, given that Cartrack’s share price stalled late last year after it announced a more conservative dividend policy to allow it to capitalise on the many growth opportunities on its radar.
It seems the market is now content to forgo bigger cash distributions, with Cartrack’s year to end-february results confirming that business remains brisk. There’s a reassuring annuity underpin, with subscriber growth up 28% to 960,798 and subscription revenue up 30% to over R1.5bn. Cash generated from operations was up 16% to R544m — which may give shareholders cause to ponder whether the more conservative dividend policy may indicate a sizeable acquisition in the offing.
While there are probably numerous permutations for further consolidation in the global telematics sector, CEO Zak Calisto discounts the chances of Cartrack pursuing meaningful deals at home or abroad. He confirms Cartrack has spent a lot of time looking at potential targets, but feels a big acquisition at this time — when there is still an abundance of organic growth opportunities — could dilute Cartrack’s focus.
Some punters may still feel that if Cartrack wants to compete more aggressively in global markets (its US expansion has just got under way), management might have to be more ambitious in its growth strategies.
But looking at the enviable return on equity of 50% and the return on assets of 28% should help convince investors that Cartrack’s executive team is capable of smartly deploying capital. The subscription growth rate over the past few years should also support efforts to acquire customers rather than companies. Cartrack’s earnings multiple of 16 times seems reasonable in light of management’s
prediction of doubledigit annuity revenue and subscriber growth to continue for the foreseeable future as well as the potential for further margin expansion.
It’s also worth remembering that Cartrack still markedly lags its slightly bigger JSE rival, MIX Telematics. MIX trades on a loftier 26 times earnings multiple thanks to its strong backing by US investors who have been clamouring for the company to secure a primary listing on the New York Stock Exchange or Nasdaq.
For butter or worse …
It should not surprise anyone dabbling in the JSE’S broader consumer sector that RCL Foods, with its large exposure to sugar and poultry, is set to serve up leaner fare for the year to end-june. The well-documented struggles at other listed counters plying their trade in the sugar and poultry sectors surely preclude me from having to regurgitate the gory details of RCL’S operations, outlined in last week’s trading statement.
What does stand out is that RCL reported that its grocery brands continued to perform strongly in the second half of the year. I suspect there are more than a few RCL shareholders wondering whether parent company Remgro is going to bulk up its grocery basket any time soon. Remgro’s sale last year of its significant minority stake in Unilever was tagged to a deal to acquire the spreads business with its wellknown brands Rama, Stork and Flora. The spreads business is valued at R7bn, and would alter the balance between RCL’S semi-commodity and grocery brands dramatically.
Remgro has remained stoically schtum on its plans though there would be obvious marketing, distribution and possibly production benefits of merging these into RCL.
Obviously the intrigue is in how Remgro executes such a deal: a rights issue is tricky given its lowly market rating, and a share swap is even more contentious considering Remgro’s already dominant holding.
I suspect there are a few RCL shareholders wondering whether Remgro will bulk up its grocery basket any time soon