Share Code: MFL – Market Cap: R1.3bn – PE: 10.0x – DY: 5.8%

H1:23 Results: Revenue & Digital Growth Occurring

• Revenue rose +19% y/y to R564m (H1:22 – R474m), driven by a +61% y/y growth in digital services but revenue mix and costs moved against the Group’s margins and saw EBITDA only rise +6% y/y & HEPS lift +1% y/y to 15.0cps (H1:22 – 14.9cps).
• Management returned R22.6m to shareholders through share buy-backs (c.6cps) and have declared a dividend of 9cps (H1:23 – 9cps).
• We have somewhat lifted our forecast revenue expectations but also tried to factor more sustained inflationary pressures and higher interest rates into the Group’s forecast period.

Our Thoughts: Bottom-line Growth Coming…

• While the current period was somewhat disappointing from a margin perspective (we did guide for margin pressure in H1:23 in our previous note), we do expect revenue growth to start to drop to the bottom-line in H2:23E.
• The new go-to-market sales team in MRM South Africa, IronTree’s continuing (if not accelerating) growth, Metrofile VYSION’s success in the enterprise space, & a growing MRM Middle East (mostly digital services) are all likely to grow in contribution to the Group over time and, thus, the Group’s growth profile should start to move towards these businesses with their digital tailwinds.

Forecast, Valuation and Implied Return: Relatively Cheap

• We see Metrofile’s fair value as 426cps (previously: 404cps), or c.37% higher than its current share price.
• Importantly, our fair value implies an EV/EBITDA of 7.6x & a PE of 13.8x, which compares attractively to Iron Mountain’s current EV/EBITDA of 14.5x & PE of 27.4x.
• Rolling our fair value forward, we arrive at a 12m TP of 496cps (previously: 473cps), implying an attractive c.60% return (including dividends) from these levels.