Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

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Equity Bottom-Up

Despite the 48% fall in the Cabcharge share price over the past year, we continue to believe the stock is overvalued. We maintain our fair value at AUD 1.60 per share which is materially below the current share price of AUD 2.05. To achieve a fair value equal to the market price, we would need to assume earnings at least stabilise which we consider unlikely considering the growing competitive pressures. Cabcharge’s superficially attractive fair value implied fiscal 2018 price/earnings ratio of 6.8 is low relative to the S&amp;P/ASX 200 Index on 16.7 but reflects our view that earnings will continue to fall.Cabcharge previously had a monopoly in the Australian taxi payment terminal market which enabled excess returns on capital. However, the emergence of competing terminals, ridesharing platforms, and a regulated reduction in electronic payment fees have impacted revenue and margins. We expect taxi fare turnover and revenue to keep falling due to the lack of an economic moat to defend market share. We also expect cost cuts to be increasingly difficult to achieve leading to operating deleverage and lower margins.Management are attempting to defend profits from competitive threats by divesting noncore assets and refocusing on the core taxi business via the launch and investment into a taxi app, 1300 CABS. However, despite the long-term growth potential of the Australian taxi market, we believe Cabcharge is poorly positioned to benefit from this trend. The company is significantly smaller than large overseas-based ride share platforms with Uber and Didi Chuxing both valued in the region of USD 50 billion. Uber already competes in the Australian market but has the advantage of a global platform and a far larger research and development budget than Cabcharge. The broader payments market is also experiencing disruption, with relatively new competitors such as U.S.-based Square, Paypal, and Apple also threats to Cabcharge.Analyst: Gareth James

Despite the 48% fall in the Cabcharge share price over the past year, we continue to believe the stock is overvalued. We maintain our fair value at AUD 1.60 per share which is materially below the current share price of AUD 2.05. To achieve a fair value equal to the market price, we would need to assume earnings at least stabilise which we consider unlikely considering the growing competitive pressures. Cabcharge’s superficially attractive fair value implied fiscal 2018 price/earnings ratio of 6.8 is low relative to the S&amp;P/ASX 200 Index on 16.7 but reflects our view that earnings will continue to fall.Cabcharge previously had a monopoly in the Australian taxi payment terminal market which enabled excess returns on capital. However, the emergence of competing terminals, ridesharing platforms, and a regulated reduction in electronic payment fees have impacted revenue and margins. We expect taxi fare turnover and revenue to keep falling due to the lack of an economic moat to defend market share. We also expect cost cuts to be increasingly difficult to achieve leading to operating deleverage and lower margins.Management are attempting to defend profits from competitive threats by divesting noncore assets and refocusing on the core taxi business via the launch and investment into a taxi app, 1300 CABS. However, despite the long-term growth potential of the Australian taxi market, we believe Cabcharge is poorly positioned to benefit from this trend. The company is significantly smaller than large overseas-based ride share platforms with Uber and Didi Chuxing both valued in the region of USD 50 billion. Uber already competes in the Australian market but has the advantage of a global platform and a far larger research and development budget than Cabcharge. The broader payments market is also experiencing disruption, with relatively new competitors such as U.S.-based Square, Paypal, and Apple also threats to Cabcharge.Analyst: Gareth James

A2B Australia

Don't Fall into the Cabcharge Value Trap