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Silverbridge & Digicore |
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18 Mar 2014. There isn't much that's been happening recently to excite me. Last time I wrote about Accentuate and I bought a bit at 59c, but still am sitting mostly in cash. This feels like a bit of a wait and see period.
Even director trades haven't been terribly exciting. There were some purchases of Hyprop shares by Hayley Cohen, the wife of a director; and an associate of Kevin Ellerine. But on the other hand there have been just as many director sales over the last 6 months at even higher share prices. This dichotomy reflects analysts' view of the share (many saying buy, many saying sel & few saying hold).
As soon as I see this explanation of a director purchase (Trustco), I ignore it: "Discretionary cash bonuses were awarded to members of the Trustco group executive committee in recognition of individual performance. In accordance with the terms of the bonus it was utilised by the Company Secretary to acquire ordinary shares in the Company as detailed above."
Then for those companies where I've spotted directors piling in (Silverbridge & Digicore), I find it too difficult too predict where things will be in 5 years time for them.
Silverbridge are an interesting company. Mr Robert Emslie bought 200,000 shares of Silverbridge Holdings at 75c a share. He's the Chairman. There's been ongoing purchasing of Silverbridge shares by directors since 2011. They offer their Exergy platform, which is a back office admin platform for life assurers. It's difficult to tell how well embedded this system is in a life insurer, and no matter how well embedded life assurers will always be thinking about whether they can do it in-house or use a different platform (management needs to make themselves useful!). If over the short-medium term it's difficult to change platforms, over the longer term it could easily happen. This could go the other way as well if life assurers see Silverbridge as a way to reduce costs. There is also the concern that they're a relatively small company, who are playing in a space where economies of scale count. What are the chances of an international company heading in and trying to take market share?
They had a pretty decent set of results over the 6 months to 31 December 2013, with earnings of 5.6c a share. If they can keep that up, they're earning 11.2c for a year, and are sitting at a PE of 7. Clearly the market thinks the last 6 months' earnings are not sustainable.
In the 6 months to 31 Dec 2013 the software rental & maintenance division had earnings of R18m, whilst there were losses of R9m from R&D and R5m from Connect Implementation Services.
In the 6 months to 31 Dec 2012 it was a similar story with software rental & maintenance contributing R16m, and R11m loss from R&D and R4m loss from Implementation Services.
Over the 12 months to 30 June 2013 there was a R33m contribution from software rental & maintenance, whilst R&D cost R19m implementation services had a loss of R10m and support services contributed R2m.
So, the increase in profit seems to be driven mainly from a drop in R&D...(not exactly the driver of earnings I'd like to see!) as well as an increase in the software rental & maintenance division's earnings.
If they can sort out the Connect Implementation Services, earnings could increase dramatically. Their comment was : "We remained focused on our largest implementation project, which from a margin perspective, still weighs heavily on the Group." and mention "sharing implementation risk with implementation partners on larger projects".
Nicholaas Hough Vlok has just bought 50,000 shares of Digicore Holdings at 210c a share, and like for Silverbridge there have been ongoing director purchases. Digicore specialises in vehicle tracking, fleet managemetn solutions & insurance telematics. They design products using GPS, GSM & other communications technology. Their offering ranges from track & trace services for stolen vehicles to enterprise-level solutions for lage fleets.
As for Silverbridge, Digicore's income stream seems strong over the short-term, but over the medium to long-term there is such a shift in technological device capabilities occuring, that it is difficult to tell whether they'll be overtaken by technology.
Digicore's EPS over the 6 months to 31 Dec 2013 was 8.2c - if they keep that up for the second half then they're on a PE of 13.
If director purchases are anything to go by, both Digicore and Silverbridge have possible short-term tailwinds, but I find it difficult to predict where things will be in the medium/long term. It's interesting that the market rates Digicore so much more highly than Silverbridge.
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