Showing their form and surging ahead

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.