The Finance Ghost: The lowdown on Famous Brands, Karooooo, MiX Telematics and PSG
When it comes to choosing restaurants, my preference for Spur over Famous Brands is rooted in a combination of personal experience, on-the-ground observations, and a hint of scepticism towards the latter company’s performance and capital allocation track record.
The Wimpy at the shopping centre near my house is quite the local hangout, if you’re over 75 and taking advantage of its pensioner menu. The Mugg & Bean isn’t even trying to fight the good blackouts fight — it closes its doors when the lights go out. In stark contrast, regardless of the blackout stage, the local Spur is always open and buzzing.
Perhaps the key difference here is that Spur’s restaurants offer a venue rather than just a food solution. They sit between pure takeaway joints (like most Steers outlets) and traditional restaurants, so Spur (and its other brands like RocoMamas and Panarottis) manages to catch South Africans trading down from other restaurants in search of value. Famous Brands doesn’t get enough of that trend.
Are we seeing another Shoprite vs Pick n Pay situation playing out in this market? With Famous Brands expecting headline earnings per share (Heps) to be between 3% higher and 17% lower for the six months ended August, it could well be the case.
Those three familiar horsemen of our economic apocalypse — load shedding, cost pressures and the overall economic environment — are getting the blame for the profitability of the group. But, in my view, it’s easy to blame bad economics for poor strategic execution.
Karooooo decides to focus
Does it make sense to build a global holding company, list offshore and then allocate capital to building a scrappy car retail business in SA? Of course it doesn’t. That didn’t stop Karooooo from trying, though.
Thankfully, the odd foray into building Carzuka is coming to an end. Karooooo has remembered that it is an asset-light platform business with a promise of recurring revenue, which is obviously an infinitely more attractive model than being yet another car dealership.
The second-quarter results show that the core business is doing well, with Cartrack subscribers up by 15% and total revenue up by 17% in constant currency (or 21% in rands). It also looks good that cash generated from operations grew by 26%.
The cash story hasn’t always followed the revenue story, as Cartrack funds the tracking devices upfront and then recoups that value over the life of the contract.
Good riddance to the distraction that was Carzuka.
MiX Telematics attracts a suitor
MiX Telematics is a fleet management company that competes with the likes of Karooooo, and it has attracted an international buyer in the form of Powerfleet.
News of an acquisition is met by a collective groan these days, like a father making peace with his daughter’s engagement — he wants her to be happy, but at the same time he isn’t quite ready for her to leave the house.
In this case, the erstwhile bachelor is moving in with her parents, as Powerfleet is structuring this as a merger and the enlarged company will be listed on the JSE.
If the deal goes ahead, this will give investors an opportunity to invest in an “Internet of Things” company that is also listed on the Nasdaq and the Tel Aviv Stock Exchange. Before you get too excited, MiX is already an Internet of Things company. Be careful of these global buzzwords and how they persuade you to overpay for companies.
Only when the circular and prospectus come out will we be able to dig into the merger properly.
PSG Financial Services and the power of distribution
There’s a significant difference between a traditional asset management house like Coronation and the likes of PSG Financial Services locally, or Quilter in the UK.
The latter businesses are highly focused on distribution, which simply means they have a sales force out there punting the products. If I consider the results of the past few years, this seems to be the better model.
PSG Financial Services (formerly PSG Konsult) reported first-half results with a 22.5% return on equity and 21% growth in recurring Heps. The dividend per share increased by 23%.
Despite how tricky the economy is, there are still companies on the local market that are growing solidly. You just have to dig to find them. DM
After years in investment banking by The Finance Ghost, his mother’s dire predictions came true: he became a ghost.
This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R29.