Share Code: MFL – Market Cap: R0.7bn – PE: 14x – DY: 8%
H1:25 Results: The Good Offset by the Bad
- Metrofile reported a disappointing H1:25 as improvements in MRM South Africa were offset by struggles in other non-digital areas. Group continuing revenue increased by 4%, driven by secure storage and cloud services, but this was impacted by declines in content services and image processing.
- While MRM South Africa improved operating profit by 19%, MRM Rest of Africa & MRM Middle East faced challenges, and Normalised HEPS decreased by 18% to 10.7cps (H1:24 – 13cps).
- Newly classified segment, “Cloud & Content Services”, saw revenue increased by 9% to R74m, but operating profit decreased by 10% to R10m. Metrofile Cloud (previously, IronTree) demonstrated consistent growth but (project-driven) Metrofile VYSION had a slower period.
- Management focus remains on building a digital offering, generating free cash flow, and reducing the Group’s debt.
Our Thoughts: “Cloud & Content Services” Segment Revealed
- The exit of Tidy Files and separating of the Group’s digital businesses into the “Cloud & Content Services” segment allow us to value this segment separately.
- Due to this, we have added a Sum-of-the-Parts (SOTP) model focussing on EV/EBITDA relative multiples drawn from listed digital document/file storage companies.
Forecast, Valuation & Implied Return: 250~300cps fair value range
- While we have maintained our DCF approach as a sense-check, we have changed our valuation methodology to an EV/EBITDA driven Sum-of-the-Parts (SOTP) given the different profile that the newly disclosed “Cloud & Content Services” segment has from the rest of the Group and, thus, the different multiple it could arguably demand in the market.
- Based off this, we see Metrofile’s fair value as 297cps (previously: 347cps), implying an EV/EBITDA of 6.4x & a PE of 16.7x. Rolling our fair value forward, we arrive at a total return 12m TP of 347cps (previously: 403cps).
- This agrees with our DCF Model’s views and, broadly, we think that the Group’s fair value range is from c.250cps to c.300cps.