Share Code: MFL – Market Cap.: R1.4bn – PE: 10.6x – DY: 5.4%

FY 22 Results: Tougher H2:22 than expected

• Revenue rose +5% y/y, EBITDA +1.0% y/y and HEPS slipped to 30.7cps (FY 21: 31.8cps) as floods, disruptions, inflationary pressures and longer customer lead times combined to make for a weaker H2:22 than we had expected.
• Despite this, cash generation was strong (R324m EBITDA converted into R327m of cash flow), debt levels are comfortable, and management hiked the dividend by +20%.
• Finally, management have asserted that share buy-backs will be initiated, which should be quite accretive at this share price.

Our Thoughts: Core remains strong, digital growing quickly

• The tumultuous environment obscured the progress made in retaining the Group’s core (net boxes grew +2.8% y/y) & growing its digital services (now making up 21% of Group revenue and grew +35% y/y).
• On the latter point, digital services are growing even quicker than reported because scanning revenues were in fact down -9% over this period; IronTree was slightly ahead of targets, & DataStor & eTracker (Metrofile Vysion) grew +40% y/y in this period.
• Annexure A shows the Group’s digital strategy (past, present & future) and it is very much worth studying as roadmap.

Forecast, Valuation and Implied Return: Undemanding multiples

• We see Metrofile’s fair value as 404cps (previously: 405cps), or c.24% higher than its current share price. Higher interest rates and our inclusion of IFRS 16 leases into net debt (taking c.34cps of fair value out of SOTP) were the major headwinds that kept our fair value flat over this period.
• Importantly, our fair value implies an EV/EBITDA of 7.5x & a PE of 12.7x, which compares attractively to Iron Mountain’s EV/EBITDA of 14.2x & PE of 37.7x.
• Given the large (c.21% of revenue) and growing (+35% y/y growth) digital revenue in Metrofile, our implied multiples appear even more attractive when you consider them relative to listed digital peers in this space (average EV/EBITDA of 20.2x & average PE of 44.4x).
• Rolling our fair value forward, we arrive at a 12m TP of 473cps (previously: 472cps), implying an attractive +46% return (including dividends) from these levels.