Transnet be damned, OneLogix doesn’t give a truck

Business

Transnet be damned, OneLogix doesn’t give a truck

Logistics company hardly faces a threat from rail, and uses the parastatal more as a partner than competitor

Chris Gilmour


OneLogix is a specialist logistics service provider that listed on the JSE in 2003 on AltX and since 2013 on the main board. It has had a relatively smooth upwards trajectory in earnings growth and the latest release was strong.
For the six months to end November 2018, revenue rose by 60% to R1.44bn, with 60% of that growth being organic. Trading profit rose by 7% to R108m, while pretax profit was 27% higher at R90m. Trading margin fell from 8.9% to 7.5%, due to higher fuel costs and moves to a leased operating model for its truck fleet.
Headline earnings per share rose by 28% to 25.5c and an unchanged dividend of 6c per share was declared. CEO Ian Lourens pointed out that because OneLogix is a growing business, dividend payments will be prudent, enabling the company to make acquisitions when they arise. The balance sheet is strong, with relatively low debt/equity (25.5%) and high interest cover on trading profit (8.2 times). Return on equity is respectable, though by no means outstanding, at 14.3%.
In recent years, OneLogix has grown via acquisition and it has a very simple, though effective, strategy for acquiring new businesses as sellers of its target companies stay on in an operational capacity to ensure effective assimilation.
Having recently sold and leased back its Umlaas Road depot in KwaZulu-Natal, OneLogix has now embarked on the third phase of development at that site. Located some way outside of Durban, and near the N3 highway, it is outside the Durban “rust belt” in which vehicles waiting long periods for transportation are at risk of corrosion. It also comes in cheaper at R850 per square metre, rather than at R2,000 per square metre for Port of Durban sites.
The Umlaas development may well contain a rail “spike” in terms of which Transnet lays down a segment of its rail network nearby, coming off the main Joburg-Durban railway line. This enables vehicles to be transported to and from Umlaas Road via rail. While Lourens sees rail as a competitive threat to the business, he also believes it will be possible for road and rail operators to work in partnership – for example, motor vehicles get transported by rail from Durban Port to Umlaas Road, and then OneLogix takes over the rest of transportation requirements.
OneLogix has diversified exposure to the mature SA car market. Original equipment manufacturers (OEMs) use its vehicle delivery services division as a fully integrated supply chain solution. Vehicles are collected at the port of entry, stored at Umlaas Road, and pre-delivery inspections are carried out by OneLogix on behalf of the OEMs. There should also be growth coming from SA’s as yet relatively small export market.
Lourens also sees opportunity in the cross-border vehicles market. SA has committed to doubling the number of motor vehicles manufactured in the country in the next few years, growing from 0.5% of global motor vehicle output to a 1% share. This will invariably result in increased demand for Onelogix services as an increasing component of that output is exported to the rest of Africa.
Extraneous conditions will remain challenging in the logistics market, both within SA and outside its borders. OneLogix faces a continuing margin squeeze and the possibility (though remote) of competition from rail. However, as things stand, it is well positioned to face these challenges with a clear acquisition strategy in place and strong balance sheet. On a relatively low rolling price/earnings ratio of 10x, it is not expensive either.
A year ago, the OneLogix share price was trading at 380c. Today it is slightly lower, at 370c, having peaked at 480c in June 2018. It has thus done better than the JSE All Share index, which is no mean feat for a small cap stock, many of which have taken a real beating in the past year.
• Chris Gilmour is an investment analyst.

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