Growth company with capital gains potential

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. ●