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Quartix Holdings plc: THE INVESTMENT CASE

Quartix on the right track as it focuses on fleet business

Quartix said it is confident on the outlook for the rest of the year and beyond
Quartix achieved strong growth in vehicle subscriptions in the first half

Vehicle tracking technology company Quartix Holdings plc's (LON:QTX) decision to reduce its exposure to the insurance market and focus on its fleet business has been paying off.

In the first six months of 2017, fleet revenue increased 15% year-on-year to £8.3mln as the subscription base rose by 10% to 96,971 vehicles, fleet installations increased by 45% to 14,324 and the customer base increased by 11% to 10,076.

The strong growth in vehicle subscriptions came from all its three regions including the UK, France and the US.

The company said the successful development of its sales channels in the UK was the most significant contributor to first half growth in new fleet installations.

It has also continued to make good progress in its operations in the US and in France.

Growth in the fleet unit helped to offset a 27% decline in insurance revenue to £3.2mln from £4.4mln.

Total revenue was broadly unchanged from the previous year at £11.5mln while adjusted underlying earnings (EBITDA) edged up to £3.5mln from £3.4mln.

The interim dividend was hiked to 2.4p from 2.2p.

Positive start to second half after good start to year

"We have made good progress in the first half,” said Andy Walters, managing director of Quartix.

“Pleasingly, the strategic decision taken last year to focus on our fleet business has delivered strong subscription growth.”

Turning to the second half, the company has made a positive start in line with its expectations.  

Chairman Paul Boughton said the high levels of recurring revenue and opportunities to grow in the UK, France and the USA in fleet, combined with the reinstatement of some lost volume and improved pricing in the insurance business, “underpin our confidence for the rest of the year and beyond”. 

“We will continue to use the financial strength of the business to invest in our core fleet operations,” he said.

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.

Stock offers excellent value, says Finncap

Commenting on its interims, analysts at Finncap said Quartix “continues to offer excellent value” on a sum of the parts valuation.

“Adding back the circa £1mln annual investment in the US business, Quartix is generating circa £7mln of free cash flow annually from the profitable UK and French operations; reliable and recurring revenue streams,” the broker said.

Finncap said Quartix looks set to meet market forecasts for the 2017 full year after focusing its efforts on the higher quality fleet business rather than insurance where pricing pressure continues.

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

The final dividend was more than doubled to 9p a share, up from 4p, including a supplementary dividend of 4.7p.

Shareholders rewarded in 2017

For the 2017 full year, the board indicated in the interim results that it expects to announce a final dividend that will bring the aggregate dividend for the year to around 50% of cash flow from operating activities.

The board will also look to distribute the excess of cash balances over £2mln (after paying out the final dividend) by way of a supplementary dividend.

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Quartix Holdings plc Timeline

September 27 2017

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