Tag Archives: metrofile

Metrofile Holdings Ltd – H1:25 Results – South Africa’s Bottomline Turns

Share Code: MFL – Market Cap: R0.7bn – PE: 14x – DY: 8%

Metrofile Holdings – H1:25 – Results NoteDownload

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.
Metrofile Holdings – H1:25 – Results NoteDownload

Metrofile Holdings – FY 24 Results – Disappointing but could be the Bottom

Share Code: MFL – Market Cap: R1.1bn – PE: 15.1x – DY: 5.6%

Metrofile Holdings – FY 24 – Results NoteDownload

FY 24 Results: Weaker than expected

  • Metrofile’s revenue rose only +1% with MRM South Africa’s revenue slipping -3% hurt the Group as delayed decisions by customers and slower product sales and revenues from digital more than offset good box pricing.
  • The MRM Middle East’s EBITDA margin fell as management had to fend off two large new entrants in the market, MRM South Africa’s scanning margins saw pressure from internal issues and continued weakness in Kenya saw management impair goodwill by R53.5m in this segment
  • Management has decided to wind up Tidy Files (successfully executed after year-end), triggering a R19.9m one-off in FY 24.
  • All these one-offs combined to negatively hit EPS by c.12.6cps with EPS coming in at 3.9cps (FY 23: 32.1cps) but—excluding the one-offs—the Group’s Normalized HEPS declined to 20.0cps (FY 23: 32.1cps).
  • Despite these troubles, the Group’s cash generation remained strong (R287m of EBITDA generated R309m of cash from operations), degearing continues (Net Debt dropped -9% to R537m) and the Group declared a full-year dividend of 14cps.

Our Thoughts: New CEO, revised forecasts

  • The Group has a new CEO with a solid background, the current CFO steps into MRM South Africa’s turnaround as MD of this major segment, & the Board will announce a new CFO shortly.
  • We have been relatively ruthless by lowering some long-term assumptions and downgrading FY 25E HEPS by c.-17% (but still see it recovering from FY 24’s trough earnings).

Forecast, Valuation & Implied Return: Lower discount rate

  • We see Metrofile’s fair value as 347cps (previously: 390cps), implying an EV/EBITDA of 7.0x & a PE of 21.1x; this compares attractive to Iron Mountain’s current multiples (see below):
  • The change in our fair value is less of a downgrade than our cut in earnings as the large drop in South Africa’s sovereign bond yields over the period has propped up our segmentally-driven DCF fair values (i.e. future cash flows are now worth somewhat more).
  • Rolling our fair value forward, we arrive at a total return 12m TP of 403cps (previously: 456cps), implying a high c.61% return (including dividends) from these levels.
Metrofile Holdings – FY 24 – Results NoteDownload

Metrofile Holdings – H1:24 Results – Tougher than Expected Interim Period

Share Code: MFL – Market Cap: R1.1bn – PE: 8.5x – DY: 6.3%

Metrofile Holdings Result Note – H1:24Download

H1:24 Results: Headwinds constrained revenues & hurt margins

  • Metrofile Holdings reported a much tougher H1:24 period than we had expected with several headwinds either constraining revenue growth or negatively impacting short-term margins.
  • Revenue grew +2% but this below inflationary pressures (labour costs increased +11%) and EBITDA decreased 4%.
  • Higher interest rates increased the financing burden and saw HEPS for H1:24 decline 13% to 13.0cps (H1:23 – 15.0cps).
  • In line with earnings, the dividend was lowered to 7cps (H1:23 – 9cps) and management bought back 1.5m shares in the market at a c.297cps VWAP.
  • The Group’s cash flow remained exceptionally strong (R160m of EBITDA converted into R143m of operating cash flow) and debt levels remained reasonable.

Our Thoughts: Strong recurring underpin to revenues & cash flows

  • Physical and digital subscription revenues make up 62% of Metrofile’s revenue, underpinning a strong base of recurring cash generation from which management continues to build out the Group’s digital strategy, this period being no exception.
  • On this digital strategy, IronTree, cloud & digital service revenue continue growing & we expect their contribution to Group revenue mix to grow (see Figures 2, 3 & 4 in this report).

Forecast, Valuation and Implied Return: Undervalued

  • We see Metrofile’s fair value as 390cps (previously: 423cps), implying an EV/EBITDA of 7.0x & a PE of 12.9x (comparing attractively to Iron Mountain’s current EV/EBITDA of 18.9x & PE of 129x).
  • Rolling our fair value forward, we arrive at a total return 12m TP of 456cps (previously: 500cps), implying a high c.78% return (including dividends) from these levels.
  • Our short-term forecasts were optimistic & have been lowered. Yet the fundamentals remain in place for Metrofile to defend its core business while it keeps investing in faster-growing, long-tail digital services businesses that are steadily transforming the Group. See Table 8 in the report (or below) for global comparisons.
Metrofile Holdings Result Note – H1:24Download

Metrofile Holdings – FY 23 Results – Great Top-line Growth

Share Code: MFL – Market Cap: R1.3bn – PE: 9.3x – DY: 6.0%

Metrofile Holdings – FY 23 Results NoteDownload

FY 23 Results: Double-digit Organic Growth

  • Metrofile revenue grew per our forecasts at +16% y/y (+3% added via the consolidation of IronTree for the full period and, importantly, +13% of this growth was organic in nature) but EBITDA was slightly lighter than we expected at R345m (FY 22: R325m) as inflationary pressure, the full cost of the prior year’s established go-to-market team was carried and necessary IT upgrades were all carried in these results.
  • The Group bought back 10m shares, helping HEPS grow +5% y/y to 32.1cps (FY 22: 30.8cps) and the dividend was maintained at 18cps (FY 22: 18cps).

Our Thoughts: Two Large, Near-term Contract Wins Offer Upside

  • The Group’s MRM South Africa and MRM Middle East both won significant contracts during the period. While the South African one’s timing is hard to know (we have excluded it from our forecasts), the Middle Eastern contract should start generating revenue from the end of FY 24E (included in our forecasts from the start of FY 25E).
  • Note: These two contracts alone add c.+20% to Group annual revenues for the periods they occur, we cannot understate how significant they (and their timing) are to Metrofile’s next couple of financial years.

Forecast, Valuation and Implied Return: Inexpensive quality

  • We see Metrofile’s fair value as 423cps (previously: 426cps), implying an EV/EBITDA of 7.4x & a PE of 13.2x (comparing attractively to Iron Mountain’s current EV/EBITDA of 16.1x & PE of 47.8x).
  • Rolling our fair value forward, we arrive at a 12m TP of 500cps (previously: 496cps), implying an attractive c.65% return (including dividends) from these levels.
  • Given the fast growth in Digital Services over the period and the significant premium these businesses trade at in public markets, we are increasingly expecting some sort of inflection points in the coming years where Metrofile’s valuation starts to reflect the growing percentage of revenue coming from Digital Services.
Metrofile Holdings – FY 23 Results NoteDownload

Metrofile Holdings – Tough Period but Digital is Growing

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

Metrofile Holdings H1:22 Results NoteDownload

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.
Metrofile Holdings H1:22 Results NoteDownload

Metrofile Holdings Ltd – Acquisition of Irontree Internet Services

Share Code: MFL – Market Cap: R1.3bn – PE: 10.0x – DY: 3.8%

Metrofile Holdings – Ad-Hoc – 2 November 2021Download

News: Acquisition of Irontree Internet Services CC

  • Metrofile has conditionally acquired Irontree Internet Services for a minimum of R80m & a maximum of R140m in cash:
    • 70%-stake for an upfront cash payment of c.R49m & a top-up payment of up to R12.3m if Irontree hits EBITDA of R18.7m for its FY 22E (February) financial year (likely), &
    • 30% to be acquired at a price based on a FY 24E revenue target of R100m (i.e. allowing integration of the business in the Group) but limited to the maximum (total) acquisition price of R140m.
  • Depending on how you view Irontree’s min/max purchase price:
    • It is on an FY 22E EV/EBITDA of c.4.3x ~ 7.5x,
    • An FY 22E Price Earnings of c.6.7x ~ 11.7x, &
    • Appears attractive against our implied DCF of the business.

Our Thoughts: Good Start on Digital Strategy

  • Irontree is highly cash generative with c.15,000 SME customers & earns c.90% of its revenue from digital backup & hosting services (i.e. recurring revenue) with c.10% of its revenue from digital, security & compliance services.
  • The business has grown revenue by c.+15% y/y CAGR over the last 5 years &, assuming this remains unchanged, the Group’s FY 24E revenue could be c.R69m (i.e. missing the R100m). Therefore, the R100m revenue target implies confidence that Irontree’s addition to Metrofile’s group will raise its growth rate (i.e. synergies).
  • This is a good first step in Metrofile’s Digital Strategy with a well-thought-out, reasonably-priced & comfortably-sized acquisition that should fit neatly into the Group and bolster both the Group and the acquired business’s growth rates (assumptions in note body).

Forecast, Valuation and Implied Return: Updated

  • Irontree lifts Metrofile’s FY 22E & FY 23E HEPS to 35.6cps (previously 35.1cps) and 40.2cps (previously 39.5cps) and adds c.+6% to our fair value of 428cps (previously 405cps).
  • Rolling this fair value forward, we lift our 12m TP to 497cps (previously 468cps) implying a 57% return from these levels.
Metrofile Holdings – Ad-Hoc – 2 November 2021Download