Karooooo: To the Mooooon?

Karooooo, aka Cartrack, just released their Q2 earnings. Here are my thoughts.

Karooooo is a leading provider of an on-the-ground operations cloud that maximizes the value of data. The Cartrack (wholly owned by Karooooo) SaaS platform provides insightful real-time data analytics and business intelligence reports.

The Cartrack offering extends beyond connected vehicles and equipment, assisting diverse enterprise customers in digitally transforming their on-the-ground operations, including systems integrations, fleet administration, field worker management, video-based safety, risk mitigation, delivery management and ESG compliance and reporting.

(As per their website/company description)

Karoos mission is to establish the leading on-the-ground operations cloud.

Key Metrics

- Total revenue increased 30% to ZAR859 million (Q2 2022: ZAR659 million)

 - Subscription revenue increased 17% to ZAR734 million (Q2 2022: ZAR628 million)

 - Profit for the period increased 26% to ZAR155 million (Q2 2022: ZAR123 million)

 - Earnings per share increased 28% to ZAR4.93 (Q2 2022: ZAR3.85)

 - Cash generated from operating activities increased 42% to ZAR240 million (Q2 2022: ZAR169 million)

These metrics are REALLY impressive, as it shows how robust they are even in difficult economic conditions.

Data is king

As per their presentation, Karooooo collects over 100 billion data points per month through system integrations, workforce tools and advanced telementary and Video-based IOT devices to empower customers with insights that deliver rea business impact.

As a result, their customers see significant short and long-term benefits that make them more competitive across their diverse industries. These are some of the valuable benefits that create market demand for their offering:

•  Reduced fuel, maintenance and all other fleet and mobility related costs
• Increased driver and in-field service worker productivity
• Increased efficiencies and controls in supply chain management
• Increased driver and worksite security and safety 
• Leaner back-office teams (automated data entries and reporting)
• Improved customer service (accurate billing, high quality service delivery, quicker query response times etc)
• Robust risk management and compliance
• Environmental, Social and Governance (ESG) management and reporting

Karooooo is well geographical diversified, as well as industry diversification such as logistics, field-service-maintenance, transport, finance, mining, agriculture and emergency services. 

Karooooo now assists over 95,000 diverse enterprise customers (Q2 2022: 83,000+) in solving their day-to-day challenges.

A word from the CEO

Assessing the Q2 2023 results, Zak Calisto, CEO and Founder, said: The solid and expected growth in both revenue and earnings in a challenging environment confirms our value proposition and cements our decade-plus track record of strategically investing for the future while scaling, growing and generating healthy profits.

Strong free cash flow generation bolstered our robust and clean balance sheet, with net cash and cash equivalents at an all-time high of over ZAR1 billion at the end of Q2 2023 (Q1 2023: ZAR854 million), a significant milestone. This high-cash generation places Karooooo in a unique position in the market.

We remain with a portfolio of customers with no concentration risk and with no significant exposure to any industry.

The Cartrack-only adjusted EBITDA of 51%, up from 46% in Q2 2022 is an excellent result and underscores the ability to grow revenue ahead of costs, especially in difficult market conditions.

We are confident to leave our outlook for growth in 2023 unchanged despite the challenging operating environment. 

My take

Karooooo is the 3rd largest position in my portfolio. Heres why I like them:

• Recurring revenue
• High organic growth
• High Inside ownership (skin in the game)
• Great at execution
• Easy product to sell
• Massive TAM & growing. They are solving globak problems.
• Sticky Product
• Easy to cross-sell and upsell
• Global company that is quite under the radar
• Large international opportunities, especially in Asia.
• Other companies in portfolio such as Carzuka and Picup still have a lot of room to expand.
• High margin business
• Healthy balance sheet with a strong cash position
• Attractive valuation, especially when compared to other global SaaS companies.

Whats not to like?

• Very low liquidity (low free-float)

So, will Karooooo shoot the lights out? Unlikely, but, this is one Im happy hold for at least the next 5 years (unless fundamentals change).

(Disclaimer: I am biased as I own Karooooo shares, nothing in this note should be seen as financial advice as you should always do your own research. Many of the extracts are taken from the Karooooo announcement itself. I would recommend reading the entire announcement to make your own assumptions)