Growth com­pany with cap­i­tal gains po­ten­tial

Financial Mail - Investors Monthly - - Analysis - Petri Redel­inghuys

Car­track is not the most liq­uid of shares on the JSE — but it is a share that prob­a­bly war­rants wider mar­ket at­ten­tion due to its strong growth tra­jec­tory.

The busi­ness was founded in 2004 as a stolen ve­hi­cle re­cov­ery spe­cial­ist. It has since ex­panded into fleet man­age­ment prod­ucts and ve­hi­cle track­ing and re­cov­ery in 23 coun­tries on five con­ti­nents.

Car­track has one of the largest ve­hi­cle telem­at­ics cus­tomer bases glob­ally and is among the fastest-grow­ing ve­hi­cle telem­at­ics com­pa­nies in the world. It has 960,000 sub­scrib­ing cus­tomers. In the past fi­nan­cial year Car­track’s to­tal rev­enue was al­most R1.7bn, with earn­ings be­fore in­ter­est, tax, dep­re­ca­tion and amor­ti­sa­tion reach­ing R761m. The re­turn on eq­uity was an im­pres­sive 50%.

SA is its largest mar­ket, with

rev­enues of R1.2bn. This seg­ment’s rev­enue grew 27% from the pre­vi­ous year. The Asi­a­Pa­cific re­gion grew its sub­scriber base by 53% to earn R180m in rev­enues, up 52% from the year be­fore. This is the com­pany’s fastest-grow­ing seg­ment. In Europe it earned R148m in rev­enues, while the rest of Africa con­trib­uted rev­enue of R116m. To­tal global sub­scriber growth came in at a blis­ter­ingly fast 28%.

On the down­side, the div­i­dend yield is rel­a­tively low at 1.66%, given that it only paid a 30c a share div­i­dend last year. The share of­fers an earn­ings mul­ti­ple of 15.6 times. Given the low div­i­dend yield, de­spite the strong cash gen­er­a­tion in the busi­ness, this means that the share price has not had the same strong growth as the cus­tomer base has had. Car­track only listed on the JSE in late 2014 at R10 a share and —

at the time of writ­ing — is around 80% higher in cap­i­tal re­turn ex­clud­ing div­i­dends over the four years it has been listed. This is noth­ing to scoff at, but one won­ders how much higher the share price would be if it spends less on growth and pays larger div­i­dends.

For now, Car­track is fo­cused on meet­ing the in­creas­ing de­mand for telem­at­ics data, con­tin­u­ing with sig­nif­i­cant in­vest­ments in tech­nol­ogy and ca­pac­ity, de­vel­op­ing new ser­vices by lever­ag­ing off its soft­ware as a ser­vice plat­form and scal­ing the busi­ness. Man­age­ment is con­fi­dent and sees dou­ble-digit an­nu­ity rev­enue and sub­scriber growth for the fore­see­able fu­ture.

As tech­nol­ogy ad­vances, telem­at­ics data — es­pe­cially in lo­gis­tics and fleet man­age­ment — be­comes more im­por­tant to com­pa­nies striv­ing for ef­fi­ciency. It should cre­ate more de­mand for Car­track’s prod­ucts and ser­vices. This could well be one of those com­pa­nies that the mar­ket is mostly over­look­ing (as ev­i­denced by the re­ally low av­er­age trad­ing vol­umes in its shares).

By tra­di­tional anal­y­sis one can­not tag Car­track a “value com­pany”, but it is a growth com­pany that could pro­vide solid cap­i­tal gains over the next decade. ●

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