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Small Cap Analysis: Uber vs Cabcharge ASX which is the smart investment choice?14.03.2016

uber vs cabcharge asx

When it comes to money it is important to divorce what you find ‘sexy’ from what is a sound investment. Russian Billionaire Mikhail Fridman would do well to head this advice following his recent US$200m (A$273m) investment in ride sharing app Uber. If Mikhail had spoken to us he would be hedging his Uber bet with the entirely un-sexy Aussie small cap Cabcharge ASX. So the comparison you would never think to make: Uber vs Cabcharge, which is the best investment choice for you?

 

The Uber Effect: The sexy investment choice

Why did Fridman’s LetterOne fund invest US$200m in Uber? Well, it is one of the most highly valued technology start-ups in the world, if not the highest. The ride-sharing app has revolutionised a whole new ‘sharing’ economy, has caused worldwide controversy and has a privately owned company value of US$62.5b.

 

Investing in the small cap Cabcharge ASX: The smart investment choice

In contrast, Cabcharge is the antithesis of sexy. The account payment system for taxi fares was developed back in 1976, received a ‘Shonky Award’ for it’s unfair credit card surcharges back in 2012 and is losing market share. It has a market cap of $355m, a current share price of $3.01, has lost market dominance which once had a return on equity at over 20% and now is lower than 15% and will probably continue to fall following the 50% reduction in network service fees in the major states. So why would you invest in a company that is losing it’s market share compared to one that is gaining market share?

 

Small cap cashflow: Your pot of gold

The answer is cashflow. Cabcharge has a strong operating cash flow. In the first half the operating cash flow was $21 million and its capital expenditure was $8million. Much of Uber’s valuation is based on the assumption that it will get 40% market share globally, which it is highly unlikely to reach and might only come close in places like San Francisco and Seattle. And while there is a buzz surrounding Uber it is still yet to make a significant impact on the market. Cabcharge, in contrast, still processed $1.1billion in fiscal 2015 thanks to almost 7,350 affiliated taxis.

 

Bottom line – how does can Cabcharge affect you

The most important thing for you to know as an investor is that Cabcharge is delivering a yield of close to 7%, reducing its debts and trading at close to it’s book value. It also has a joint business venture with bus company CDC, even less sexy, but a good earner, reporting earnings before interest and tax of almost $30m. This is the great thing about small cap shares, you can find gems where most people wouldn’t even think to look.

 

Consider Cabcharge the ASX small cap

So if Mikhail Fridman had consulted me before parting with US$200m he would have been able to increase his US$14.6b fortune by investing in powerful small caps like Cabcharge – and milking it for all it’s worth.

About the Author

Richard Hemming

Investment analyst and Editor of Under the Radar Report

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