POINTER TELOCATION LTD PNTR
January 27, 2014 - 11:32pm EST by
hack731
2014 2015
Price: 9.60 EPS $0.82 $1.14
Shares Out. (in M): 7 P/E 11.7x 8.4x
Market Cap (in $M): 63 P/FCF 11.7x 8.4x
Net Debt (in $M): 22 EBIT 6 12
TEV ($): 85 TEV/EBIT 14.2x 7.1x

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  • Revenue Growth
  • Fleet management

Description

Pointer Telocation (PNTR) is cheap based on continued growth. Revenue growth was +21% y/y in 3Q13. CEO David Mahlab believes that the recent sales growth (of ~20%) will persist. By 2016, CEO thinks company could be at $150 million in sales with EBITDA over $20 million (up from F13 sales of ~$95 m and EBITDA of ~$11 m). If that potential growth is achieved, that would imply FCF and EPS around $2 per share and a stock, at a market multiple of 15x, around $30 per share (more than a triple from here).

BUSINESS

Pointer provides fleet management and driver safety solutions, including vehicle security, stolen vehicle recovery and road side assistance. Company competes in the "Mobile Resource Management (MRM)" space. Two-thirds of company sales are "services" (e.g. software subscriptions, software platform) and one-third of company sales are "products" (e.g. "cellocator" hardware). Typical customers are utilities, telecom/cable and trucking companies with a fleet of 5 to 5,000 vehicles. With the solution, a typical customer has up to 30% savings on operating expenses of the fleet (due to reducing claims costs, fuel efficiency, reducing accidents, improving driver behavior, etc.).

Importantly, the company's industry has a healthy growth rate, with an expected doubling over five years. In an industry report quoted by the CEO, "Mobile Resource Management (MRM)" is projected to grow from 14 m users worldwide in 2012 to 32 m users in 2016 (with most of that growth coming from BRIC countries). In addition to industry growth, Pointer is benefiting from growing customer demand in two areas: insurance telematics (driver behavior, usage based insurance, accident detection and reconstruction) and fleet efficiency (fuel efficiency, safety/e-call, remote diagnostics, business intelligence).

About 30% of company sales are outside Israel. The company has about 150 customers globally.  About 70% of revenues are recurring. Markets outside Israel include U.K., Norway, Mexico, Brazil, and India. The company has had a very small presence in the U.S. for the last two years (generally, choosing to avoid the U.S. market due to the higher competition). Overall, the company has its solutions installed in about 1 million vehicles in 50 countries.

Outside of fleet management, a new growth area for the company is "asset management", such as for shipping companies (i.e. containers, cargo) as well as pharmaceutical companies. PNTR has a few pilots and thinks it could be 10% of sales by 2016.

RECENT EVENTS

On September 17, 2013, company entered into definitive agreement to acquire remaining 51.2% of Pointer do Brasil Comercial (Pointer Brazil) for $4.3 m in cash (closed in October 2013). On October 30, 2013, the company announced a $3 m project to manage a fleet of 3,000 vehicles in Brazil.

On December 23, 2013, company announced an accretive agreement to acquire remaining 45.5% interest in Shagrir Systems for $7.72 m (using credit facilities) and 994,357 shares of stock (closed on January 15, 2014). Based in Israel, Shagrir provides MRM for stolen vehicle recovery/roadside assistance/towing and a car sharing service called Car2Go.

VALUATION

Competitors include Ituran (public: ITRN; also in Israel; $455 m MC, trading at ~16x F13 EPS, net of cash), MiX Telematics (public: MIXT; based in South Africa; $400 m MC with $70 m net cash; trading at ~20x F15 (March) EPS, net of cash); Telogis (private; founded in 2001; based in Aliso Viejo, CA; fleet management; received $93 m in VC from Kleiner Perkins in October 2013), Fleet Matrix (private; based in San Diego; driver behavior management), Omnitracs (private; based in San Diego; had sales of $372 m in F13 (Sept); sold by Qualcomm to Vista Equity Partners for $800 m cash on 11/25/13). As the two publically-listed competitors each trade at above market multiples (above 15x EPS), I would expect PNTR to also eventually trade at/above 15x EPS (if it can sustain the recent growth).

With the recent acquisition of the remaining interest in Shagrir Systems, the company should have net debt of about $22 m and run-rate EBITDA of $11+ m. Capex has been ~$4 m a  year for the last few years. If the 20% revenue growth persists, EBITDA may grow $3-4 m a year. With $150 m in sales (perhaps by 2015/2016), EBITDA may be above $20 m and EPS and FCF around $2 per share. A multiple of 15x EPS/FCF of $2 per share at that time would imply a $30 stock (more than a triple from here).

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

Catalyst

Sustained growth (sales, EBITDA, earnings).

Acquisition candidate. DBSI Investments (owns 50.3% of PNTR) is a family office, with Chairman Yossi Ben-Shalom and director Barak Dotan. Chairman Yossi Ben-Shalom was Chairman of PNTR CEO David Mahlab's last company (was IPO'd and then acquired). DBSI Investments will eventually seek an exit from the investment, as they have done in the past.  

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