iOCO is a technology company that is increasingly behaving like an investment holding company. That’s not a bad thing.
Having previously operated with a joint-CEO structure, the company now boasts Rhys Summerton as the sole CEO. Summerton is first and foremost an investment professional, so he understands his way around return on capital calculations. It would shock you to learn how often this skill is absent in listed companies.
Summerton is ably supported by Ashona Kooblall as CFO, an executive who has plenty of experience in corporate finance and strategy roles across various industries. With the group having been through a process of decentralisation, it’s important to give more context around the skill set that remains at the centre.
A light head office structure means that the executives are more aligned with shareholders in terms of taking a helicopter view of the business and allocating capital appropriately, while empowering divisional heads to do their thing. That’s the theory, at least. But decentralisation is no guarantee of success, particularly when companies start chasing deals that they shouldn’t be doing.
So far, so good, though: iOCO is telling a positive story across key metrics. If it maintains capital discipline, that good story just might continue.
The capital allocation strategy includes that most wonderful unicorn in listed company land — a sensible share buyback strategy. Far too many South African companies use dividends as the default setting for returns to shareholders when they would actually benefit from share buyback strategies instead. iOCO’s earnings multiple of 8.8 means it can repurchase its shares on an earnings yield of nearly 11.4%. That’s a better use of capital than taking on more risk through acquisitions.
The capital allocation strategy includes that most wonderful unicorn in listed company land — a sensible share buyback strategy
The group has also used its cash generated from operations to significantly reduce debt, although its willingness to execute buybacks shows that it is comfortable with maintaining some level of debt in the business. This is congruent with a decentralised strategy that prioritises capital allocation, as a healthy level of debt can be a positive driver of return on equity.
Net debt has been reduced to R512m. Ebitda for the interim period was R305m and guidance for financial 2026 is for ebitda to exceed R605m, so iOCO is operating with a stable balance sheet and a forward net debt-to-ebitda ratio of under one.
Here’s another way to look at it: interest on debt was R27m for the six months to January, almost identical to the R28m invested in share buybacks. Banks and shareholders alike are eating at this table.
This is easier to achieve when there’s more food to go around. Although revenue growth of 3.5% won’t set anyone’s hair on fire, ebitda margin expanded by 200 basis points to 11%. This was achieved despite pressure on gross margin, so the company isn’t joking when it talks about cost rationalisation. In fact, operating expenses were down by 9.2% — a great example of the power of running a streamlined group with a light head office structure. As soon as groups become too centralised, bloat inevitably sets in.
The uptick in ebitda margin paired beautifully with a sharp decrease in net finance costs of 34.5%. By the time you reach the bottom of the income statement, headline earnings increased by a juicy 47.4%.
As is so often the case in these corporates, digging into the segmental view tells a far more volatile story. This is why companies like to have several irons in the fire, as the volatility is smoothed out for investors.
The IT services division has work to do in the second half of the year, as revenue was up 3.3% but ebitda fell by 7% for various reasons. The operational technology division managed revenue growth of just 1.3%, but a solid uptick in margins led to ebitda growing by 15%.
In case you needed more convincing around the investment holding company flavour at iOCO, the guidance for financial 2026 is for free cash flow per share of at least 60c. How often do you see guidance for this metric being released by JSE-listed companies?
On a share price of 434c, that’s a forward free cash flow yield of 13.8%. The share price is flat year to date, with the geopolitical noise having made it difficult for the stock to continue the momentum seen in the first half of 2025. If iOCO can deliver these promised numbers, then the market surely cannot ignore the stock for long.