A Small Transport Company Going Places

We have all heard about the investor who bragged about his 100% or 1 000% return trading small cap shares or about the guy who made it rich by investing in small cap, undiscovered shares that made it big. We consider any share that is not in the JSE top 100 as a small cap share. For someone with a small portfolio, small cap shares can appear to be the perfect investment. Sophisticated investors, however, should maintain a majority of their share portfolio in large cap shares, as they should be looking for companies that are able to continually raise their dividend payouts. But as a natural diversification, a small part, possibly as high as 10%, could be allocated to small cap shares. This gives a balanced approach for your portfolio. Should you come across a small cap share which returns 100%, it is going to contribute nicely to your all round share portfolio. On the other hand, if some small cap shares go lower, your whole share portfolio would not experience a significant hit.

OneLogix is a niched player in the logistics industry, listed on Alt-X market with a market capitalization of R206-million. It comprises the operations of Vehicle Delivery Services (VDS), Commercial Vehicle Delivery Services (CVDS), RFB Logistics, Atlas Panelbeaters, Magscene and PostNet, which is a well respected and established franchised chain of 227 business service outlets servicing the SME market. The group’s blue-chip client base spans the media, motor, bulk commodities and SMME markets. For the year ended May 2010, revenue from continuing operations grew by 21% mainly driven by the recent acquisition of RFB Logistics, which had largely offset the downturn in the vehicle delivery market. EBITDA increased by 32%, while adjusted operating profit gained 29%, slightly hampered by the 37% increase in depreciation expense. Subsequently, the operating margin improved from 9.8% to 10.4% due to operational efficiencies and cost savings. Net finance cost declined by 28% attributable to the lower lending rates experienced in the first half. This further boosted the group's EBT which rose significantly by 41%. However, headline earnings only grew by 27% due to a higher effective tax rate at 26% and a substantial 85% increase in profit to minorities. Consequently, diluted HEPS improved by 27%, while diluted HEPS from continuing operations jumped by 44%. During the year, Atlas Panelbeaters was acquired and group increased its shareholding in Magscene to 80%. A final dividend of 3 cps was declared, which brought total dividend declared to 6 cps. Cash generation remained strong for the period under review.

OneLogix has a strong position in various niche markets that are typically cash generative and have relatively high barriers to entry. The group also has healthy margins and an attractive ROE. Trading on a historical P/E of 6.5 times and at 20% premium to its TNAV, the share appears cheap compared to its historic ROE. The group is geared towards economic expansion so the more difficult economic conditions should moderate growth in the medium term.  We feel the share offers value at current levels and would recommend investors to buy shares. In addition, the share is underpinned by an attractive dividend yield of 7.1%.