Show­ing their form and surg­ing ahead

Financial Mail - Investors Monthly - - Analysis - Stafford Thomas

An ex­cep­tional growth story is un­fold­ing in the ve­hi­cle telem­at­ics (re­mote track­ing and mon­i­tor­ing) mar­ket, says re­search from US firm Gart­ner, which fore­casts that in the fleet seg­ment global rev­enue will reach US$55bn by 2021 — al­most dou­ble its 2017 level. It is a growth story on which two SA com­pa­nies, Car­track and Mix Telem­at­ics, are rid­ing high.

Car­track showed its form in its half year to Fe­bru­ary, lift­ing rev­enue 19% to R1.32bn and head­line EPS (HEPS) by 17%. Sub­scriber num­bers grew by 25% to more than 751,000.

Prof­itabil­ity was also im­pres­sive, with earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­sa­tion (Ebitda) com­ing in at 49% of rev­enue, and re­turn on eq­uity at 58%.

An­dre Ittmann, CEO of Car­track’s SA op­er­a­tion, is con­fi­dent that the growth pace will be main­tained.

Car­track has also been spread­ing its wings glob­ally, with non-SA rev­enue in its past half year ac­count­ing for 26% of the to­tal, com­pared with 9% in 2012. The group is now ac­tive in 24 coun­tries span­ning Africa, Europe, the Mid­dle East, the Asia Pa­cific re­gion and the US.

In SA alone there is still big po­ten­tial. “SA has 12m ve­hi­cles but only 3m or 4m [of them] are equipped with track­ing de­vices,” says Ittmann.

“De­mand in SA is ac­tu­ally out­strip­ping our abil­ity to meet it fully,” he says.

But Car­track has not had it all its own way. It ran into prob­lems in the US mar­ket, which it en­tered in Septem­ber 2016. In other coun­tries it has en­tered, ex­plains Ittmann, the process of ini­tial­is­ing its tech plat­form has been largely one of “plug and play”, us­ing cell­phone tow­ers as its com­mu­ni­ca­tions back­bone. This is not the case in the US, where cell­phone op­er­at­ing sys­tems vary from state to state.

Car­track en­coun­tered many tech­ni­cal prob­lems and in its lat­est year ran up an op­er­at­ing loss of R7.9m in the US on R1.4m rev­enue. “It’s been tough, but we have learnt a lot, and the de­mand for our ser­vice is cer­tainly there,” says Ittmann.

The US is a chal­lenge Mix Telem­at­ics has long since dealt with. It be­gan ready­ing it­self for a big push into the coun­try in Au­gust 2013, when it raised $5m through the list­ing of Amer­i­can De­pos­i­tory Re­ceipts on the New York Stock Ex­change.

“We trans­ferred a lot of our se­nior lead­er­ship to the US, which has now be­come our big­gest growth mar­ket,” says Mix Telem­at­ics CEO and founder Ste­fan Joselowitz. “Our fo­cus is on large fleets, which is a huge mar­ket.

“We are also very ac­tive in Canada and Cen­tral and Latin Amer­ica,” says Joselowitz, who is based in Florida.

He con­tin­ues: “We have been see­ing the ben­e­fits com­ing through in the form of a steady rise in mar­gins over the past eight quarters.”

Ben­e­fits came through in grand style in the com­pany’s year to March. Rev­enue gen­er­ated in the Amer­i­cas (ex­clud­ing Brazil) jumped 53.5% on a con­stant cur­rency ba­sis, to

R227.6m, while Ebitda came in 195.2% up at R79.1m. In Brazil rev­enue was up 51.8% off a low base to R54.4m, and Ebitda rose 78.3% at R16.7m.

Over­all, with solid per­for­mances from op­er­a­tions in Africa, the Mid­dle East, Europe and Aus­tralia, to­tal rev­enue grew 11% to R1.7bn while HEPS in­creased 60% to 32c.

Driv­ing the big prof­itabil­ity jump was pri­mar­ily an in­crease in Ebitda mar­gin from 19.6% to 25.8%. “We are tar­get­ing to in­crease this fur­ther to about 30%,” says Joselowitz.

To­tal sub­scriber num­bers in the past fi­nan­cial year were 10% up at 664,000.

The share prices of Car­track and Mix Telem­atic have surged over the past 12 months, ris­ing 44% and 187%, re­spec­tively. It has left Car­track on a 18 p:e and Mix Telem­at­ics on a 33 p:e.

Nei­ther is cheap, but on growth po­ten­tial of the com­pa­nies it ap­pears un­likely that their share prices have run their full course.

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