Tracking a roller-coaster

What a strange trip it’s been for MiX Telematics in the past year. The share blipped down under 460c in August 2022 before rebounding to nearly 620c in mid-September, only to slump back under 500c near the end of 2022.

With hindsight, punters who picked up MiX in January

when the share trundled as low as 475c are probably feeling rather content. The share is back around 560c after some encouraging noises were made at the thirdquarter results announcement early in February.

In truth MiX has been a bit of a sleeper since its unbundling from the old Control Instruments group back more than 15 years ago. Arguably US investors via MiX’s ADR (American depositary receipts) programme are more intimate with the inner workings of this vehicletracking and fleetmanagement specialist than local investors. It’s mainly international investors who pose questions during MiX’s quarterly investment calls.

MiX has also been overshadowed by larger rival Karooooo (the old Cartrack), which now has a Nasdaq listing, and Altron, whose vehicle-tracking subsidiary Netstar is the subject of market curiosity.

MiX has, however, been a decent performer and has maintained an impressive regime of quarterly dividends

even if the yield (about 3%) is not exactly the key factor when contemplating investing in the group.

South Africans will know groups such as Tracker because of our country’s appalling rate of vehicle theft and hijacking. But MiX and the telematics sector generally

has moved away from just stolen vehicle tracking to offer compelling software-as-aservice solutions for driver safety and driver efficiency. In larger enterprises especially in times of exorbitant fuel costs such monitoring can be a significant cost saving.

Third-quarter results for MiX featured some impressive numbers. Total revenue of $37.8m was up 14% year on year and subscription revenue of $32.5m was up 17% on the same basis. More importantly, annual recurring revenue of $132m rose 17% y/y and MiX reported net quarterly organic subscriber additions of

44,600. This was a record and hopefully bodes well for the next few quarters. The total client base now sits at close to 960,000.

Perhaps most heartening was that MiX’s adjusted earnings before interest, taxes, depreciation and amortisation (ebitda) of $8.4m were achieved on a markedly higher margin of 22.2% (17% in the previous quarter). Net cash from operating activities was a reassuring $11.2m with free cash flow of $5.9m.

What is worth gauging at MiX is its presence outside its core African, or rather South African, market. At last count

the nine months to endDecember 2022 SA generated almost $24m of the nearly $38m ebitda

(before central costs are deducted). The ebitda margin in the African segment is more than 40%.

There is some traction in the Middle East/Australasian markets with third-quarter revenue of $6.4m and in the Americas with $6.15m. The margin in the Americas is markedly lower than other regions, and yielded just

$1.4m in ebitda in the quarter. The Middle East/Australasia looks better with a margin of 36% and quarterly ebitda of $2.3m. Europe is still fairly small with third-quarter revenues hitting $3.8m and ebitda $1.4m.

While the non-Africa operations are small compared with the traditional African market, collectively global revenues are growing and it might not be far-fetched to pencil in combined international revenues of $80m (R1.4bn) for financial 2024. A medium-term target of $100m (R1.75bn) at an average margin (before central costs are deducted) of 30% would make for a nifty yield for MiX and for local shareholders banking on continued rand weakness.

The short-term horizon looks good. MiX CEO Stefan

Joselowitz noted that:

“Heading into the fourth quarter of the fiscal year, we expect to see continued improvement in our operating margins while maintaining our balanced approach to growth and profitability.”

He added that MiX’s ability to generate free cash flow and margins that were in line with the fiscal year-end target range was encouraging “as we work to unlock full profitability potential”.

While MiX’s organic growth potential might lure a few small-cap punters at current levels, there is a bigger picture to contemplate. IM imagines that Karooooo and MiX have complementary geographic presences which, to build critical mass in key offshore markets, could perhaps see the respective leadership teams holding discussions.

The fact that MiX, with a heap of interest from US investors already, has not opted for a primary listing on Nasdaq might even suggest that a transformative transaction is a possibility.

There is a bigger picture to contemplate