I am considering taking a position in A2B, the old Cabcharge, Australia's Taxi company. I think the market has underpriced this business, and at current prices its trading below its range of value.
First filter, is there catostrophic risk?
No, the greatest risk has been disruption and legaslative, disruption has been overrated IMO, while ride sharers have taken a piece of market share, they have only been able to do so by making ongoing, massive losses. I dont believe ride sharing in its current model is sustainable and in fact the main impact may have been to focus A2B on improving their service and introducing tech solutions pioneered by the disruptors. The legislative impacts have just about washed through, in the removal of the ticket clipping with excessive credit card fees, and probably any future legislative impacts are more likely to negatively impact the disruptors.
2nd filter, is there balance sheet risk?
There is next to no debt, NTA is 86c, book value is $1.36.
3rd filter history of cash flows/earnings
Cash flow & earnings have been positive for the last 10 years.
Is their poor capital management?
There have been no new shares issued in 10 years
Dividends have been paid every year for last 10 years, payout ratio typically round 60%
Does it have a good ROIC?
its currently lower than I would like at about 6%.
What price is fair value?
A conservative range of intrinsic value is around $1.70
What is the thesis for investment?
I think the business has been misunderstood and oversold, I believe dividends are likely to increase slowly as profits recover and this will likely lead to a rerate of the business. Even if the business remains fairly static, it throws off a lot of cash and will provide a healthy return just based on yield alone.
What can go wrong?
Probably the biggest risk is mis-allocation of capital, the cash could tempt management to make a foolish aquisition at some point in the future.
What are the alternatives?
The obvious alternative is to increase position size in businesses I already own, where I think the rate of return is better. This includes businesses like KME and SFC.
