A2B - Back in the fight

A2B’s (A2B) result on Wednesday highlights, in our view, the traction the company is beginning to generate from reinvesting back in the business. Over 12 months ago, in the face of intense competition from other ride-sharing providers, A2B made the decision to increase its investment in technology, marketing and fleet. Interim growth of +2.1% in processed taxi fares and a return to growth in Cabcharge Accounts are some of the first fruits of this investment. 

Key points from the result

FY19 was always about management proving up the merits of its strategy reset and demonstrating signs of growth. The early indicators are encouraging (and to be fair they need to be), given that competition and regulatory impacts are not disappearing anytime soon.

Organic revenue growth of 7% was in large part driven by solid growth in network subscriptions revenues, partly offset by the full impact of the move to the 5% service fee cap in Queensland. Total revenue growth of 12.2% included a full contribution from the 13cabs Brisbane acquisition. 

The rebrand to 13cabs and investment in the 13cabs app is clearly resonating with customers. There have been over 2 million downloads to date with 80% growth alone in 1H19 on prior comparable period (pcp). The launch of the digital pass offering has stimulated growth in Cabcharge Account volumes – the first such growth since 2015.

Growth in fares did slow in the second quarter and most of this was cyclical. Competition remains intense but the general consumer softness evident in the last quarter of 2018 did affect trip volumes. Management believes that A2B managed to grow share in trips taken during the half.

There is little need to add to the cost base after the investment of the last 12 months. The personal transport market is growing. If, as we expect, A2B can share in this growth through fleet, fares processed and Cabcharge Account volumes, operating leverage will really start to drop through in fiscal 2020 and beyond. A2B continues to generate strong cash flow, and the Balance Sheet is net cash.

On the front foot

FY18 represented a trough year for A2B. In our view, the stock is cheap. Its current multiple of 14x FY20 earnings is more a reflection of where the business has come from - not where it is going. A2B’s reset means that for the first time in 4 years, the company is on the front foot and looking at growing its core business.

Uber isn’t going away anytime soon, but A2B is now back in the fight.

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