Cartrack Holdings Ltd CTK
July 08, 2019 - 10:51am EST by
2019 2020
Price: 18.80 EPS 1.25 1.40
Shares Out. (in M): 300 P/E 15 13
Market Cap (in $M): 400 P/FCF 10 8.5
Net Debt (in $M): 26 EBIT 45 56
TEV (in $M): 423 TEV/EBIT 9.4 7.5

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It’s off the beaten path, a secular organic grower, vertically integrated & competitively advantaged, with an aligned founder/CEO/controlling shareowner.  This is a SaaS company, with offline components which differentiate their abilities from peers, at a realistic valuation of sub 8x ebitda, & ~3x revenues that has been consistently profitable, now trading at ~10.7x cash flow generated.

Cartrack is a telematics company that provides fleet management solutions to owners of vehicles delivered as software-as-a-service.  This includes vehicle tracking with built-in data collection, analysis & communications, and insurance telematics with physical vehicle recovery as a safety & security service.


They provide a dashboard for management (not dissimilar to the way one sees the motion of local cars when hailing an Uber) with a big buttoned app for each individual driver allowing instant communications, safety warnings, all manner of data tracking, and on the go updates. This leads to increased fleet productivity and workforce efficiency, is a step forward in safety and security, and reduces costs while making regulatory compliance as simple as pressing a button to run & file reports. 

Their market cap of 5.7B Rand (There are ~14.1 ZAR to the USD) equates to about US$400m, with 300m shares outstanding.  There is about $27m in debt and minority interests, plus a bit of cash putting the EV at ~US$428m. These charts from the company are in Rand, but I’ll use USD for figures going forward, unless otherwise specified.

In the June quarter the business passed the 1 million active subscribers mark, across 24 countries on 5 continents.  Each pays on avg $125/year, recurring annually, for the SaaS product… It’s stable, annuity revenue, with high forward visibility through proven customer retention.  Their 64 month average subscriber life cycle approximately matches duration of vehicle ownership until replacement. Subscriber growth is up from 751k active subs at the end of Feb 2018, and up from 246k at the end of Feb 2012, with growth now accelerating into an underpenetrated marketplace in all geographies.


This company has been built from scratch, in a hand curated way, by Zak Calisto, the Founder & CEO, and his team.  They have grown entirely organically, with no acquisitions, in a manner of controlled growth, paying dividends along the way, and have a culture focused on an excellent customer experience with high levels of customer service and satisfaction.

They are totally vertically integrated.  The software is 100% built in-house, now housed in their R&D center in Singapore, and they own all their core telematics IP.  In addition, they manufacture the device that goes into the vehicle for tracking and data collection. This goes far beyond location tracking offered by some competitors, to include measurements of fuel consumption, tracking time in use with distances & speeds traveled, and advises on safety and maintenance among many other features.  They also have internal Sales and Customer Service teams, plus they do their own vehicle recoveries in-house.  

Helping to accelerate their growth and lower their customer acquisition costs, they have recently begun having the tracking devices installed at the OEM level, so new vehicles will come with a free trial.  This is broadening their customer reach and lowering costs by substituting lower pre-sale install costs compared with the previous model of advertising leading to trial with install and ultimately a sale. The OEM dealers love this because the remote tracking allows them to more effectively manage vehicle warranties, monitor service due dates, provide accident & breakdown assistance, and generally enhances customer service.  The OEMs climbing on board over the past year is a major differentiator.

The OEM change also comes with some accounting changes because under accounting rules they can’t classify devices pre-installed at the dealers as normal unsold inventory, so they had to expense them all.  The COGS change pressured ebitda down to 45% from approximately 50% in the fiscal year ended Feb 2019. This accounting noise basically pulls forward some expense, for a program that is providing economies of scale across their business and extending their sales reach.   

Regulatory tailwinds are helping.  Government regulations have been passed in many jurisdictions requiring commercial fleet managers to use electronic logging devices (ELDs) to track data and provide reporting on a driver’s Record of Duty Status (RODS) to improve safety and reduce carbon footprints.  In the US for example, under the ELD mandate, commercial driving operations must now keep records and file monthly reports on HOS (hours of service) and the IFTA (International Fuel Tax Agreement), and daily Driver Vehicle Inspection Reports (DVIR). Similar regs such as Europe’s E-Call initiative, Brazil’s Contran 245 Mandate, DLT taxi GPS in Thailand, and many others elsewhere are eliminating the old paper-based tracking systems, and driving demand for turnkey solutions.

There are a myriad of additional demand drivers from autonomous vehicles and smart transport, to the IoT and new applications of technology.  The telematics & broadband costs to track a vehicle has become low enough to enter the individual consumer market with all sorts of new services offered.  Insurance companies are adopting telematics rapidly to assist with assessing driver risk and to tailor premiums to an individual driver’s risk profile. 

Crime is also a driving factor, especially in developing economies in Africa, South America, and Asia where there is need to lower insurance costs and increase levels of personal security in the event of a vehicle hijack.  Cartrack is among the few really adding value in this area because their Stolen Vehicle Recovery services, which have an audited 92% recovery rate, allow them to offer a recovery warranty. This is a major differentiator that cloud only operators can’t offer.  In their home market of South Africa, for example, they have trained recovery teams ready to go 24/7, collaborate with law enforcement, and when a theft is in progress may even send this chopper to help track and safeguard your vehicle:

To meet growing demand, Cartrack has spent heavily, with a 60% increase in sales personnel last year.  This resulted in 209k new active sub additions in fiscal 2019, up 28%, and is expected to reveal its full impact in the current fiscal year (we’re now in fiscal 2020 ending February).  An accelerated growth phase has begun.

In addition, the company is rolling out new value-added services on top of its SaaS platform to its installed base that is now over 1 million strong.  These include insurance aggregation services, which utilize driving data (speed, safety, frequency on known routes, etc) to help bring down insurance costs. They are launching a Vehicle Trader application to help customers dispose of used vehicles across their network and beyond. And they’ve launched Back Office Administration services, which has already seen huge uptake rates in Europe and will be launching in South Africa in the next few months. 

They are the lowest cost provider of their services thanks to their vertical integration which embeds ability for quick turnaround on innovation & execution, and it gives them great flexibility to adapt to changing trends.  Being the low-cost provider may be an insulating factor, if and when price pressures emerge in customer turf wars to come. Management expects margins to expand as penetration increases, but to be conservative I’ve modeled declining average sales prices per vehicle at steady but lower than historical margins with a 12% add-on sales rate to the SaaS platform.  Having grown to over 1m active subs, and with regulatory catalysts across the globe, I can see a likely glidepath ahead into multi-millions of Subscribers. Over 2-3 years they will climb onto this chart organically. Adding 250k Subs this year and 300k next gets them to the 1.5m Subs column:


The software is a scalable platform and could be extended to new types of customers.  The application of telemetry data will have major impacts on costs and efficiencies well beyond commercial fleets.  One can imagine the opportunities at other vehicle heavy operations such as Airports, Army Bases, Golf Courses, Sports Arenas, Collegiate and Corporate Campuses, etc.  None of this is contemplated in the above.

TAM (total addressable market) is growing fast.  There are many forecasts out there, but the company cites Goldstein Research and Gartner which have the global telematics market growing 20.9% annually through 2024, with dramatic revenue increases to $55B by 2021.

I believe in time they will be takeover bait.  While the CEO and his family have control at ~68.5%, he’s in his mid 50s, has already written much of his magnum opus and has founded and operated a number of businesses over the course of his career.  So, I don’t think he’s immune to temptations given the obvious and vast valuation disparity between South African SaaS compared with US & EU SaaS nuttiness in bubble territory. International SaaS comps, Softbank, and Private Equity firms have been acquisitive at MUCH higher multiples than the company is trading for… and they’ve done so in smaller and less profitable companies than Cartrack on similar growth trajectories (some imagined).

So, compared to the model where one can quibble with the assumptions and multiples, I could realistically see Cartrack getting taken out for a lot higher than 3x revenues or 8x ebitda given the nutty multiples of public companies in the space which are 6-12x revenues (some as high as 25x) in the US & EU, and many of those “growth” companies don’t generate much ebitda, making Cartrack a coveted asset that could be expanded faster with the distribution capabilities of the larger players. 

So, while I shudder to think of cash burning companies trading at 10x+ revenues, who are hell bent on hanging onto that multiple, being willing to pay 6x+ revs for Cartrack… and I waiver on whether that’s a sound part of the thesis, I’m comfortable owning Cartrack as a growing entity at reasonable valuation.  Also, The CEO and family bought ~1.4m more shares when the price dipped to ZAR13 in November, saying on the call “we couldn’t resist.” So, I consider that a floor.

There is key man risk and political risk, both of which I consider remote.  There is more tangible risk of bubble funded comps acting as non-economic operators to gain share at any cost.  So far this hasn’t happened, and if it did it would likely be in the US and Western Europe which aren’t the core markets… At least not yet! 


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.



-         -  Milestones for Active Subscribers and Annuity Revenues

-         -  Expanding margins as market penetration increases

-         -  Additional regulatory mandates driving demand

-         -  Add-on revenues may well surprise to the upside

-        -   A bigger SaaS Co could come along a pay up to acquire them

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