The JSE has a relatively limited pool of high-quality technology businesses for investors to consider for their portfolios. There are however at least 2 interesting technology counters offering attractive dividend yields at what appear to be compelling prices.
Both have recently released investor updates and might be worth a closer look.
Document warehousing and data group Metrofile has long been considered an excellent business. With a market capitalization of R1.5bn, a forward price to earnings multiple of 10 and a historic dividend yield of 8.5%, the share appears to be attractively priced.
The largest shareholder in the group is the Mineworkers Investment Company which holds 34.1% in the business, providing a stable anchor shareholder.
The company recently released an interim trading update to the end of December 2017 and has reported an operating profit of R77,9m for the 6 months which translates into 15,6c per share.
There are a couple of considerations when looking at Metrofile:
- While it may be attractively priced and has been a regular dividend payer, earnings growth in South Africa seems to be stalling which is forcing it to look at opportunities outside of its home market. South African businesses have not always enjoyed the best of times when moving into global markets.
- Every time you do a transaction, this comes with the associated fees and transaction risks. One of the businesses that it acquired was Cleardata where fraud was subsequently discovered.
- The company has spent nearly R20m of its cash buying back 5m shares for an average price of R3.99 (The share is currently trading at R3.50). This has the short term effect of boosting earnings per share but cash was sitting at below R16m at the end of December suggesting that this won’t be repeated in the near-term
Previously known as Foneworx, Cognition has perhaps unfairly been classified as the “Fax2Email” business operating in a sunset industry.
With a current market capitalisaiton of just R145m, the company can conservatively be expected to generate 13c/share of headline earnings for the 12 months (Currently 6.7c for the 6 months).
To replace falling Fax2E-mail revenue, the business has been acquisitive and has now positioned itself with a handful of key offerings including:
- Document Management Services including the Securdox offering
- BMi Sport which does the sports sector research
- Livingfacts research house
- Cognition Insights which houses the potentially exciting mibubble technology which aims to build a big-data engine for consumers to manage not only their FICA but their exposure to specific brands
Some reasons to keep an eye on Cognition:
- The company has recently changed its dividend policy to include an interim dividend (Payable in April), having previously only paid out annually
- The mibubble technology is potentially a powerful data play in the changing world of consumer media and is well positioned for the introduction of GDPR regulations
- The company counts media group Caxton as one of its major shareholders. Cognition had previously looked at a 3-way transaction with AME which failed to materialize. This suggests that the door open for potential corporate action.
- Sports in South Africa remains in the commercial doldrums but BMi is a market leader and will benefit from a sectoral turnaround
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