Dollar earnings and dependable growth

For a company that makes a lot of its money in US dollars, MiX Telematics is oddly mute when selling itself as a rand hedge.

The vehicle tracking and fleet management group has been making inroads into the US market over the past few years but it is not overselling its obvious exchange rate advantage.

MiX Telematics made R166m (US$13.7m) in revenue from its American operations for the year to end March 2015. This figure was boosted by the average rand value dropping from R10.12/$ to R11.06/$ when compared to the corresponding year.

Given the uncertain economic outlook in SA, punting the group on its exposure to hard-currency earnings would have been an easy sell.

But on a recent conference call to discuss its numbers for the third quarter to end December, the currency advantage hardly got a mention from CEO Stefan “Jos” Joselowitz. And when he did talk about it, it was to say how it negatively affected the SA economy. Joselowitz instead focused on its strategy of providing fleet solutions to large companies, especially those in the oil sector. Though low oil prices have knocked the energy sector, MiX Telematics has maintained its growth for the quarter. Revenue was up 7.7% to R378.6m ($24.4m) and profit was up to R57.9m ($3.7m), from R31.9m ($2.1m).

This strategy is paying off. It won a contract to provide fleet management, safety and compliance services to Houston-based energy group Halliburton’s fleet of more than 15,000 vehicles.

The deal is a big one because not only is Halliburton ranked fifth-largest on Transport Topics’ top 100 private carriers list, its fleet will increase if its merger with Baker Hughes goes ahead.

This deal was followed by three large bus operators in Brazil — São Gonçalo Group, Triecom/Trectur and Expresso Itamaracá — signing up as clients, bringing a further 400 vehicles as subscribers.

Deals like these are the reason MiX Telematics now has more than 550,000 subscribers in more than 120 countries. Joselowitz says the group is well positioned to take care of multinationals which operate across different regions because they are more keen to deal with a single company than with dozens in different countries.

The group is also getting a boost from a change in regulations in the US. The management of fleets has to move away from manual paper logs filled in by hand to an electronic tracking format.

Joselowitz is convinced this change will open up more opportunities: “We have decades of experience in this domain and have several initiatives under way to capitalise on this opportunity.”

Though the group sees a big part of its future in the Americas, Joselowitz points out that despite the unease in the SA economy, Africa is still an important market. “Africa represents over half of our business. It remains our most profitable region despite the headwinds we face.”

The results for the quarter were respectable but this should not come as a surprise as MiX Telematics has never been a company that produces yo-yoing numbers.

In fact, one of its most noticeable features has been how it consistently comes out with earnings growth in the mid to high teens — if not higher.

Over the years, performances like these have driven its share price up. It shot up from R3.20 in early July 2013 to double its value to R6.50 in August 2013.

But even though it has continued to produce solid numbers, investors have lost interest over the past few years. Its share price is down about 30% on what it was a year ago and 17% since the beginning of this year. Looking at its current valuation, the asset tracking group looks like a buy with a PE of 7.93 and share price of R2.31.

Shareholders should also be well satisfied that it has a respectable dividend yield of 6.09%.

The group’s share price might be down but in the US, where it is listed on the Nasdaq, it is getting fans. Zacks Investment Research, which compiles brokerage recommendations, reports that one broker said it was a buy and two said it was strong buy.