US adventure: Global visibility and liquidity a step closer for Cartrack ahead of Nasdaq listing

US adventure: Global visibility and liquidity a step closer for Cartrack ahead of Nasdaq listing

As quoted in Business Maverick on 31 March, 2021 by Sasha Planting

A desire for greater global visibility and liquidity is driving the plan to delist Cartrack from the JSE, and list its holding company, Karooooo, on the Nasdaq, with a secondary, inward, listing on the JSE. All things being equal, the transaction will be concluded by May.

Karooooo, listed under the name of Cartrack on the JSE, has recently announced terms for its Nasdaq listing.

The provider of vehicle fleet management and tracking software will terminate its listing on the JSE on 22 April, in line with its planned corporate reorganisation.

Karooooo plans to list on the Nasdaq with a secondary listing on the JSE, following the delisting of Cartrack. Dates for the US initial public offering have not been provided.

The company plans to raise $190-million by offering four million shares, a portion of which will come from CEO and founder Zak Calisto at $47.52, the as-converted last close of Cartrack’s shares on the JSE.

There will be a 10-for-one consolidation as part of the listing.

Calisto holds almost 70% of the shares which, until now, he has been unwilling to dispose of, arguing that the company is undervalued.

“At the proposed price, Karooooo would command a market value of $1.5-billion, which puts it in the realm of small-cap shares in the US,” says Kyle Wales, a global portfolio manager with Flagship Asset Management.

However, even as a small-cap share, it is hoped that Karooooo will benefit from greater levels of trading than seen on the JSE.

“The trading frequency in the US is, predictably, far higher,” says Wales. “Average daily traded value of $10-million a day is not uncommon, even for a company half the size.” In comparison, Cartrack, on the JSE, trades about 10,000 shares per day.

“Most South African investors are not prepared to pay up for companies that are growing quickly,” Wales adds. “The shareholders of Karooooo believe that a US listing, supported by a bigger free float, will enable the company to attract a price more equivalent with the company’s value.”

Flagship has been invested in Cartrack since 2019. “It was trading on a 15x p:e, which some thought was expensive, but it was growing at 15% a year,” says Wales. “The international business accounted for 30% of revenue, but as this was the part of the business that was growing the quickest, it provided an opportunity for even faster growth as international grew in the mix.”

It seems investors may have noticed this. Cartrack’s share, after bumbling along at between R9 and R13.50 for four years, began a steady upward climb in late 2019 to reach R70 currently — with the recent surge no doubt bolstered by shareholders’ option to effectively swap their Cartrack shares for shares in Karooooo.

The company operates in the $50+ billion global telematics market, along with local competitors Mix Telematics — which has a primary listing on the New York Stock Exchange — and Netstar (now part of Altron).

Outside of South Africa, where it is the dominant player in vehicle recovery and fleet management space, Karooooo does not really compete with Mix or Netstar.

Mix has focused largely on the US market although it has a global presence, while Netstar has kept its operations local.

Cartrack has followed a careful global strategy, achieving dominance in niche markets, notably Poland, Portugal and Singapore. Germany is the next focus, a far bigger market.

“While there is always risk when entering a new market, the growth opportunity is greater,” Wales says. “It’s early days, but to date, execution has been phenomenal, so this next step will be telling.”

The proposed IPO is also being watched by Renaissance Capital which provides pre-IPO research on firms. It notes that Karooooo has customers in 23 countries, with more than 1.3 million subscribers. This is more than Mix which reported 812,000 subscribers in its year to March 2020 and Netstar with 833,000. Its customers range from individual consumers to large enterprises including car rental agencies.

While Cartrack is based in South Africa, holding company Karooooo moved its global headquarters to Singapore last year, as it looks to expand in the faster-growing Asia Pacific and Middle East regions.

The company is currently in a closed period ahead of the release of results for the 12 months to March. However, Cartrack provided an indication of performance with the release of results for the nine months to the end of November. The company grew subscription revenue by 18%, from R1.4-billion to R1.6-billion. Subscription revenue now represents 98% of total revenue as the trend of customers choosing the bundled platform contracts with no up-front fees continues.

All eyes will be on Karooooo as it begins its US adventure. This could possibly be the catalyst for Altron, which may consider unbundling Netstar as it continues to unlock value for shareholders. DM/BM