Cartrack is a small-cap winner
In a booming SA economy, telematics company Cartrack’s interim doubledigit revenue, profit and earnings growth would be regarded as very good. In the moribund local environment, its metrics are positively sparkling, and that has been the case for at least the past five years.
Since the beginning of 2019, the share price has risen by more than 60%, compared with the JSE all share index, which has gone nowhere.
Additionally, it has been immortalising its profit base by deriving an increasing element of earnings offshore. The company’s management expects the excellent interim figures to continue for the full financial year to February 2020.
With 1.1-million subscribers globally, Cartrack is a serious player in telematics, being a leading software-as-a-service provider of mobility solutions for small, medium and large fleets, as well as providing insurance analytics, security and safety offerings to businesses and consumers.
Data analytics remains its primary offering while it is growing its artificial intelligence and value-added subscriber services.
It is the leader in SA, followed by MiX Telematics, Tracker, Netstar and C Track.
Founder and CEO Zak Calisto says SA is an underpenetrated market for telematics and stolen-vehicle recovery. Other players, notably Altron, which owns Netstar, believe the market is mature.
Cartrack considers it has the highest audited recovery rate of 92% for stolen vehicles. With its low fees, these qualities make for a formidable competitor barrier to entry. It also has longstanding relationships with large and medium-sized enterprise vehicle fleets.
Year on year, net subscribers rose 22% from about 850,000 to more than a million. Subscription revenue, which accounts for 96% of total revenue, grew 26% to R897m.
Cash generated from operating activities soared 70%, from R262m to R446m.
Ebitda (earnings before interest, tax, depreciation and amortisation) rose 28% to R480m, resulting in an ebitda margin of 51%, which Cartrack believes makes it an industry leader. Operating profit margin was 34%. Interim headline earnings per share rose 28% to 72.2c. Return on equity is a very healthy 47%.
Divisionally, SA subscriber growth was 23%, with subscription revenue growing 26% to R655m.
Asia Pacific (Apac) is the fastest-growing region in the group and the second-largest revenue contributor (12% of total subscription revenue) after SA (73%). The number of subscribers in Apac rose 39% and subscription revenue increased 46% to R105m.
The European segment contributes 9% of total subscription revenue. Subscriber growth in Europe was 16% and subscription revenue rose 20% to R80m.
The rest of Africa has been something of a laggard in recent years and displays different dynamics to other geographic areas, with most subscribers paying for their hardware upfront. The African subscriber base rose 9% and subscription revenue grew 7% to R54m.
Cartrack maintains an office in the US but as yet there is no operational capability. Calisto says this investment is strategic and has yielded many key insights that have contributed to the group. The US is a very competitive area and it takes significant funds and patience to make money in this market. Cartrack is biding its time and building its intelligence in the country.
The share is tightly held, with Calisto and associates holding about 80%. While he has committed to improving the situation, it may well take a significantly higher share price before he is persuaded to sell meaningful blocks of shares into the market.
At a share price of about R23, the price-to-earnings ratio is 17.5 times based on annual standardised headline earnings per share of 131c. While it is much higher than the average PE for the market, it is not excessive, considering its robust growth prospects, with earnings per share growth exceeding 20% a year expected by the market for the foreseeable future.