Karooooo: July 2022 results, Our thoughts
The gift that keeps giving
Karoooo which is a leading telematics and logistics SaaS provider reported 2023 first quarter results yesterday (28 July 2022). Karoooo has a solid history of delivering superior growth, its latest results displayed that the company still enjoys superior market leadership despite macro headwinds.
Brief summary of results
|Q1 net subscriber additions were 16 800 bringing total subscribers to 1 542 772, Q2 started on a strong footing with June 2022 subscribers exceeding 18 000, this is more than net subscriber additions throughout Q1 (per management subscriber momentum continued into July).|
Total revenue was up 28% to R801mn with subscription revenue 17% higher than Q1 last year, despite inflationary pressures, operating profit was 29% higher. Profit for the period was 44% higher with earnings per share up 42% to R4.96. (The previous period had a once off IPO costs which contributed to lower earnings per share). Robust cash generation led to an 18% increase in cash and cash equivalents to R854mn.A debt free balance sheet places the business in a position to reinvest cashflows for long-term growth.
Southeast Asia had a strong performance as covid-19 disruptions eased. During the quarter, Karoooo onboarded Coca Cola in the Philippines. South Africa’s sales were impacted by the KZN floods which led to higher-than-normal defaults and flat subscriber growth through the quarter.
Our take on results
- Accelerating growth in the business, Asia and new business segments have delivered strong growth
- Strong and accelerating subscriber growth into Q2
- Robust balance sheet with near R900mn in cash
- Accelerating growth opex to cement market leadership
Profitable growth continues
Since listing Cartrack in 2014, karoooo’s management has built a reputation around responsible growth, not mindless chasing of growth without regard to profitability. EBIT margins have steadily declined over the past couple of years on the back of increased investment in sales and marketing. Sales and marketing spend as a % of sales increased by 30% over the past 3 years (10% of sales in Q1 FY21 to 13% of sales in Q1 FY23). We remain confident that return on investment for this spending will be satisfactory and early evidence suggest that subscriber growth is gaining momentum as discussed above.
Pulling new growth levers.
Carzuka which is a 100% owned subsidiary of Karoooo was launched in 2021, the online car dealership has exploded beyond expectations with revenues growing 16 X over the past 5 quarters. At an average selling price of R100 000, Carzuka is already selling 500 cars per quarter.
Management expects Carzuka to breakeven in 2024, we think this is conservative considering that the segment lost less than R4m over the past quarter. Management expects the division to be selling 10 000 cars p.a by end 2023, in which case the company will be able to achieve significant economies of scale.
Karoooo logistics (Picup)
Picup which is a “pay per parcel” logistics management platform continues to gain traction, the business is in the process of onboarding blue chip clients such as Dis-chem and Pick n Pay, we are optimistic on this business
Karoooo’s management did not change their FY23 guidance on the back of a strong start to Q2. Total number of subscribers is expected to be between 1,7m and 1.9m, this is 10%~23% higher than total subscribers at the end of Q1. Guidance for EBITDA margin remained within the long-term historical range of 45%-50% (what a profitable business). Effectus is optimistic that this business will continue to deliver superior returns going forward and we encourage management to address the low liquidity of the shares.