Cartrack in the fast lane

GROWTH: EARNINGS AND SUBSCRIBERS JUMP While it’s still small, analysts believe this is one to watch.

Vehicle recovery and telematics company Cartrack announced interim results for the six months to August on Wednesday that saw earnings growing handsomely on the back of a jump in subscriber numbers.

The company’s primary business is the tracking and recovery of vehicles for which it charges subscription fees. The number of subscribers increased by 21% to 666 422 across the 24 countries its services are offered in. Growth was spread geographically, with increases in SA of 19%, in Europe of 24% and Asia Pacific of 122%. The only blot was in the rest of Africa, which saw subscriber numbers stay constant but revenue fall.

This saw subscriber revenue jump by 19% versus the same period in 2016. It contributed to the 14% increase in total revenue of R629 million.

What was particularly impressive was the company’s ability to increase margins. Its Ebitda rose faster than revenue, advancing 26% to R297 million, and increased in absolute terms from the same time last year, moving from 43% to an eye-popping 47% during the current period.

This allowed headline earnings per share to increase by 20% to 46 cents. Cartrack delivered an interim dividend of 18 cents per share. The share price quickly bumped its way up to R15/share in response to the results before settling on R14.47, nearly 3% higher than the previous day.

At the current valuation, a doubling of the company’s half-year earnings would place it on a price-earnings ratio of a moderate 15.7 times. This hardly looks expensive for a company that has grown subscribers and revenue at a compound rate of 20% over the past five years, and which presents investors with increasing margins.

The other power in Cartrack’s investment proposition is the highly cash generative nature of its business. Eighty-eight percent of its total revenue is annuity income as a result of the large subscriber base. And of the revenue generated, 91% results in operating cash flow (and dividends).

Wayne McCurrie, senior portfolio manager at Ashburton Investments, thinks the company has not been fully recognised for its growth. “It has been on a strong trajectory for a long time now. It’s still a relatively small company but a lot more people are going to start looking at it post this result. The growth in its subscriber base, which will obviously pay off in the next year, was phenomenal.”

The growth in its subscriber base, which will obviously pay off in the next year, was phenomenal. Wayne McCurrie Senior portfolio manager at Ashburton Investments