Sneaker Trade
Here's a trade: Pull out your phone. Flip to adidas.com. Buy some Yeezys. Swipe over to StockX and sell them at a huge premium. It's an easy buck.
But, it shouldn't happen this way. "Anyone can't just buy things in one place and sell them in another and make a profit" scream economists everywhere.
And most of the time, the economists are right. These opportunities tend to disappear. Quick.
The sneaker trade is one Lamplighter's intern, Jeffery, used to pull pre-pandemic until bots took over and squeezed the profit and consumer tastes moved on from super-premium priced kicks. It's not as profitable today.
There are reasons that these opportunities pop up. Adidas, for example, might cringe if it developed a reputation for price gouging, so tries to avoid it. The trade-off is sometimes underpricing shoes.
Similar situations pop up in financial markets from time to time — things are cheap in part because of where they trade.
The Johannesburg Stock Exchange is one of these places.
Investors are skeptical of a lot of things about South Africa — politics, corruption, basic safety — so it's not a popular place to operate. Right now, stocks there trade at a measly $8 for each $1 in earnings, compared to $24 for companies listed in the US. But what if a company were just listed there? What if the company mostly operated in other places. These places could be where investors valued things highly, like, say, the US, Europe and Australia.
Mixed up
This was MiX Telematics (MIXT), a company providing fleet management solutions to customers with large and sprawling delivery networks like Pepsi, DHL, Shell and chocolatier, The Linde Group. Its sensors and cameras record things like location, incident records, driver behavior and other sorts of information that let companies operate their trucks and deliveries more effectively.
It began in South Africa as a response to safety. It helped customers there keep their trucks and shipments from getting stolen. It moved into providing greater return on investment for its customers — improving fuel efficiency and routing, improving driver safety, lowering insurance costs and automating compliance. This also led it to a more global customer set.
It wrapped its point-to-point solution into a flexible, easy-to-use package. Customers often combine it with other services to build a more complete solution. One of these other services is Powerfleet (PWFL).
Powerfleet, in some ways, mirrored MIXT. It listed in the US on the Nasdaq. It delivered insights to companies about inside things — forklifts and refrigerated containers — rather than outside things — trucks and routes — like MIXT. It served some similar customers, but for different things.
Mix and Mash
The business case to mash them together was obvious. Customers could keep track of their stuff inside and outside distribution centers through the same service. Moving to a US base and a US listing would make the coupling even more attractive. It would (almost) instantly appeal to a much broader investor set with much deeper pockets.
PWFL and MIXT had this outcome in mind when they decided to merge last October. PWFL was able to pluck MIXT off the Johannesburg Stock Exchange, paying just about $8 for each $1 of MIXT earnings. The new bundle would trade in the US under the Powerfleet name, even though MIXT shareholders would own about two-thirds of the combine company.
By moving from Johannesburg to the US, the combine company would — the thinking goes — be compared to things like Samsara (IOT), another fleet management company. This one doesn't actually make any money yet, but trades for $17 for each $1 in revenue (not earnings)! Other similar US internet-of-things companies change hands for $25-$30 for each $1 of earnings. The US floor is considerably higher than in the old market. $25-$30 is higher than $8.
There are other things to like about the deal, but this simple change-of-venue maneuver is the most basic way to frame it. It changes the game for the company to reach a more attractive set of investors. Even without all the other work that management expects to put in, the move from a low-price market to a high-price one works.
Disclaimer: None of this is investment advice. It's meant to illustrate ways LCM thinks about investing. Things that LCM decides are good investments for LCM and its clients are based on many criteria, not all of which are covered here. Some or all of LCM's ideas may not be suitable for other investors. LCM does not recommend investing either long or short any position mentioned. LCM may own positions in some of the companies mentioned. Some of its ideas will lose money — investing entails risk. See full disclaimer here.