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Quartix Holdings plc: THE INVESTMENT CASE

No fleeting investment: Vehicle tracking specialist Quartix looks to big opportunities in US markets

Revenues from Fleet - Quartix’s largest operation - expanded by 15% in the year to December 31 2016 to hit £14.9mln, boosted by a 19% increase in its subscription base
US truck
INVESTMENT OVERVIEW: QTX The Big Picture
During its second full year of trading in the US, Quartix’s customer base in the country jumped to 1,075, up from 693 in 2015

After seeing strong growth in 2016 driven by its Fleet business, vehicle tracking specialist Quartix Holdings plc (LON:QTX) is expecting further development of that core business in 2017, notably in the US market.

Revenues from Fleet - Quartix’s largest operation - expanded by 15% in the year to December 31 2016 to hit £14.9mln, boosted by a 19% increase in its subscription base to 87,889 units, up from 73,744 a year earlier.

The group said Fleet growth was strong in the second half, following its decision to refocus management efforts on the business after a strong first half from its Insurance division.

During its second full year of trading in the US, Quartix’s customer base in the country jumped to 1,075, up from  693 in 2015, with 6,191 vehicles under subscription, against 3,179 a year earlier.

In its recent results statement, Quartix’s managing director Andy Walters said: “We completed some key product initiatives and expanded our footprint in the USA, where we believe the opportunity to be more than 5 times the size of the UK market.

“We will be making additional investment in the year in the development of our fleet business including further development of the US market."

France flourishes …

The company also saw strong Fleet growth in France last year, where it now has 1,428 customers accounting for almost 10,000 vehicles under subscription, having launched the business in 2011.

In a post-results interview with Proactive, Quartix’s boss said: “We think the French market is at least as large as the UK market.”

WATCH: Quartix boss talks of 'very good growth'

Overall, the group’s global subscription base stands at just under 88,000 units, up from 73,774 12 months earlier.

Looking ahead, an upbeat Walters said: “The high levels of recurring revenues and opportunities to grow in the UK, France and the USA in fleet combined with continued progress in our insurance business underpin our confidence for the rest of the current financial period and beyond."

Telematics tracked …

Quartix’s insurance revenues increased by 25% to £8.4mln in 2016, up from £6.7mln a year earlier, as it  installed 69,300 new insurance tracking systems in 2016, an increase of 22% on 2015.

However, despite this growth, installations in the second half were 13% lower than in the first half reflecting  a switch from  low margin insurance sales.

Walters said: “Within the insurance sector, following the strategic decision to move away from low margin insurance sales, we will seek to target those opportunities which allow us to demonstrate and deliver the levels of service quality and value for which we have become known.”

Same but different …

Whilst Quartix uses the same technology for both commercial fleet tracking and insurance telematics, each market uses them in different ways, leading to differing business models.

Fleet customers focus more on efficiencies of operation, such as use of fuel, driver hours,  and typically use the group's services for many years, resulting in low rates of attrition.

Accordingly, Quartix focuses its business model on the development of subscription revenue based on system rental.

Insurance telematics customers use the group's technology to monitor the driving style and habits of higher-risk drivers, normally for a policy with a term of just 12 months.

Quartix therefore treats this business as an equipment sale, with the tracking system being sold, at policy inception.

Overall strength …

Quartix saw its overall pre-tax profits increase by 9% to £6.5mln for 2016 as sales rose 19% to £23.3mln.

The group’s cash conversion was strong, enabling  the Group to increase its net cash to £6.2mln at the year-end, up from £3.0mln at the end of 2015 even after following the payment of £2.9mln in dividends.

Investors were rewarded with a bumper payout. The final dividend was more than doubled to 9p a share, up from 4p, including a supplementary divi of 4.7p.

That takes the total distribution for the year to 11.2p a share, representing a yield of 3.4%.

Brokers bullish …

Small-cap specialist broker finnCap started coverage on Quartix with a ‘buy’ rating and a target price of 400p per share just ahead of the firm’s annual results released on February 27.

In its initiation note, the broker said: “Fleet revenues are recurring and very sticky. The UK at least supports the current valuation but the international opportunity makes Quartix a must-have for the next five years, in our opinion.”

In its post-results review, Shore Capital - which has the same rating and price target on Quartix - concurred: “We believe UK fleet growth can accelerate again and that there is nothing in the price for the US [and] international."

WATCH: Could Quartix shares hit a fiver?

Quartix shares currently change hands at around 404p each, and are up almost 20% in the year to date, having gained over 25% in the past month.

 So there looks to be nothing fleeting about this investment, aside from its solid focus on the sector.

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Quartix Holdings plc Timeline

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