Results say Cartrack is a steal

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COMPANY ANALYSIS

Results say Cartrack is a steal

Telematics operator thrives on rising annuity income

Chris Gilmour

Cartrack, the pre-eminent JSE-listed telematics operator, delivered another strong set of results for the year ended February 28 2018.
It is an industry leader, with very few telematics companies anywhere in the world growing as fast, according to CEO Zak Calisto. The company is now represented in 24 countries on five continents.
The global demand for telematics services just keeps on growing, from private individuals, vehicle fleet owners, insurance companies and correctional services organisations. This is due to regulatory compliance requirements, increasing insurance telematics and driver safety and security – and global growth estimates range from 17% to 22% a year.
This innate demand growth coupled with high customer retention rates makes Cartrack’s revenue largely of an annuity nature. Annuity income, being income associated with subscribers rather than from customers who buy the software outright, is 88% of Cartrack’s total revenue and growing.“Customer retention is critical,” says Calisto. The average customer life cycle is 64 months, versus a contractual commitment of 36 months. There is a definite trend away from device ownership and towards system rental. 
The group boasts 780,000 subscribers, with the compound five-year annual revenue growth rate being 21%. 
In SA, the low-end of the insurance/telematics market is largely untapped, as vehicle owners cannot afford comprehensive insurance.
In a highly innovative move, Cartrack now offers a theft-only insurance product for R9.99/month, limited to a vehicle value of R150,000 with plans to increase this cover limit over time. The Automobile Association of SA estimates that 70% of all vehicles on SA roads are uninsured, so this product has attraction for a broad mass of potential customers.Geographically, SA remains the largest revenue contributor at 74%, but declining, being 91% in 2012 and eventually dropping to 50% long-term.
Calisto is confident that the next 12 to 18 months will be much better in Africa, as consumer confidence returns, aided by stronger commodity prices and an increasing southern Africa theft rate.
Headline earnings per share rose from 64c in 2015 to 100c in 2018. The dividend, however, is the same as it was in 2015, at 46c, after rising to 55c in 2016 and 2017. This reduction is a deliberate move to conserve cash to reinvest further into the rental income segment.
Calisto is the group’s largest shareholder and unashamedly backs the dividend cut, showing a huge vote of confidence in the company’s outlook.
“I understand that other shareholders like to receive them,” says Calisto, “but if it was up to me, I wouldn’t pay dividends at all”.
Chris Gilmour is an investment analyst.

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