Company Analysis: Metrofile Holdings Ltd.

Metrofile has been a stock that's performed outstandingly throughout the years possibly because it's business model isn't difficult to understand and the services it provides of storing documents, the majority of which comes from sectors of the economy where government makes it a requirement to hold documentation for a set period, is seen as an industry that lacks excitement yet contains the element of reliability during tougher economic times when the stability of revenue streams are hard to come by.

A pocket-sized company when compared to the likes of JSE giants such as Naspers or BHP Billiton but hardly a pushover when considering a market cap of over R2 billion as well as paying out stockholders a healthy dividend yield of 6.25% per annum, it's easy to see why so many investors have become attracted to this company especially given the variability of earnings in other segments of the equity market.  

Data taken from MoneyWeb.
www.moneyweb.co.za 

However the Price to Earnings ratio of 15.74 is sure to make prospective buyers consider their choices a little better as this would suggest the stock is hardly cheap.

The information that drew the most of my attention was the Authorised Shares that can be issued and the actual number of Issued Shares in circulation. A quick glance reveals that there are about 73 million shares still available to be issued after an initial 500 million was authorised. This would imply that should the company wish to expand operation it has the option open to approach stockholders in raising further capital requirements however this scheme could become limited unless a resolution is passed and more shares authorised to issue.

MFL Addendum to subscription agreement entered into between Metrofile and MIC Investment Holdings Pty Ltd ("MI... https://t.co/o792xmtHOU

— JSE_SENS (@JSE_SENS) December 5, 2016

This leads us to the next point of observation where there is a proposed agreement in place between Metrofile and MIC Investment Holdings (Pty) Ltd for the subscription of 8 million Metrofile shares by MIC in exchange for cash.

It's important to note that MIC (Mineworkers Investment Company) is currently the largest shareholder of Metrofile with 34.41% stake in the business which contributes the biggest share to Metrofile's status as a black-owned company which sits at over 53%.

Although the 8 million shares being issued to MIC only represents 1,87% of total shares issued it does indicate top management's intentions of being on the charm offense when implementing its strategy. Since the need for it's services are directly generated from government's involvement in legislating the storage of documents for regulatory purposes as well as utilising the services of companies such as these in storing their own documents, it makes sense to be top rated in terms of BEE which could be the distinguishing mark for the industry in the future.  

From a technical standpoint the price has been in a consolidatory range for a number of months but when weighed up against the momentous rally that took place over a series of four years any form of pause in the trend makes sense. 

The issue of new stock will dilute earnings in the future but not to a dramatic extent however it could ensure the trend of consolidation continues until real growth earnings is found once again. 

Levels to watch are R5.50 as the resistance and R4.00 as support with both these prices playing a crucial part in holding back or keeping up the trend.