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Cabcharge grows its way out of dull market

The 2013 annual report for Cabcharge (ASX: CAB) announced a slight increase in both revenue and profit. Turnover was up 2.21% from $192.3 million to $196.6 million, while net profit after tax was $60.6 million, up 1.04% from $59.97 million.

This taxi service and bus fleet operator is using the latest technology to make reservation booking and travel payment easy and streamlined to increase the ease for customers. Currently, the company is implementing new “tap n go” contactless eTicket devices, which makes the payment process faster and simpler for both passengers and drivers. Last year, 20% of credit card transactions were contactless, yet this year it has risen to 43%.

The business has been affected by the subdued economy in many parts of the country, as partly due to a combination of cost-cutting measures by corporate customers and government. It has responded by acquisitions in new areas to expand its footprint.

Taxi network services in NSW and Victoria have seen an increase in the number of taxis electing to use the service, and there has been a 15% increase in fleet numbers since Yellow Cabs South Australia was acquired in 2012.

This year’s purchase of Maxi Taxi will provide more geographic diversification through the licences in Queensland and the ACT. Ownership of the business phone numbers and trademark will help the company expand more nationally and reduce costs associated paying external licensing fees. The acquisition is projected to be positive accretive from the start.

A major development this year was the new taxi legislation in Victoria, which will effectively reduce the service fee charged for processing electronic payments from 10% to 5%. Currently, the company receives about $22 million in fee income, but the new changes will halve that to $11 million. The company stated that it can’t speculate on the total financial impact at this stage.

The share price around the time of the May announcement fell 15.3% in one day, and has only recovered about half of that since. From July 2012, share price has lagged the S&P ASX All Ordinaries Index (ASX: XAO), down 16.8 %.

Foolish takeaway

Taxi and bus services are usually licenced, and don’t have as fierce competition as other industries, so they can be slow, steady earners. Short-term setbacks in licencing and regulation do occur, but if the company continues expanding their presence, earnings can be stable.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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