Metrofile Holdings – Tough Period but Digital is Growing

Share Code: MFL – Market Cap.: R1.5bn – PE: 10.5x – DY: 4.5%

H1:22 Results: Tough Period

  • Metrofile’s H1:22 period saw domestic riots & elections, the implementation of the POPIA, Kenyan regulatory pressures, COVID lockdowns & supply chains disruptions.
  • The Group’s revenue rose +4% y/y (driven by the Middle East and Digital Services), though margin pressure lowered Operating Profit -2% y/y.
  • Strong cash generation allowed the Group to degear further (despite acquiring IronTree during this period) & the combination of lower finance charges & a lower effective tax rate (attributable to the Middle East) saw HEPS grow +1% y/y.
  • Implementing a new dividend policy, management has hiked the interim dividend by +29% y/y.

Our Thoughts: H2:22 Recovery + Digital is Growing

  • Many of the headwinds in H1:22 should abate during H2:22E, thus we expect some upside in the coming full FY 22E results.
  • Already in Q2 management saw box volumes in South Africa recovering while H2:22E should also see a full six month’s consolidation from IronTree (it was only consolidated for a single month in H1:22).
  • Perhaps not obvious at first glance, but Digital Services now contributes 20% of the Group’s revenues. We are extremely bullish on developments in this space and expect Digital Services to be a growing vector in future results.

Forecast, Valuation and Implied Return: Margin of Safety

  • We see Metrofile’s fair value as 405cps (previously: 428cps), or c.20% higher than its current share price.
  • Importantly, our fair value of 405cps for Metrofile implies an EV/EBITDA of 7.1x & a PE of 12.7x, which compares attractively to Iron Mountain’s EV/EBITDA of 14.6x & PE of 31.1x.
  • In fact, when compared to Iron Mountain, Metrofile has the same-or-better returns & significantly less gearing.
  • Rolling the 405cps fair value forward, we arrive at a 12m TP of 472cps (previously: 497cps). This implies an attractive +41% return (including dividends) from these levels.