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.