Our opinion on the current state of KAROO(KRO)Cartrack was restructured into a new international listing under the name Karooooo (KRO) on 21st April 2021. The company operates in the vehicle recovery, insurance, telematics, and fleet management sectors across 24 countries. With a 92% recovery rate, Karooooo claims to lead the industry. The company has shown remarkable organic growth, with its subscriber base increasing by 21% compound annually over the past six years. Approximately 96% of Karooooo's turnover is annuity income, ensuring stable and predictable revenue streams.
The company was founded by Zak Calisto, who owns 68,5% of the Singapore-based firm. Its rapidly growing annuity income, combined with its rand-hedge characteristics, makes Karooooo an attractive investment for private investors. It has also been drawing strong institutional interest. With minimal working capital requirements, the company's annuity income covers its overheads even before the start of each month. Investors are encouraged to accumulate this share during periods of market weakness.
On 7th December 2020, the company announced plans to list on NASDAQ with an inward listing on the JSE, enabling access to international capital markets. On 12th February 2024, Karooooo announced a share buyback plan to purchase up to 1 million of its own ordinary shares in the market.
In its results for the six months to 31st August 2024, Karooooo reported earnings per share (EPS) up 31%, with a 17% increase in subscribers to 2,136,610. Subscription revenue grew by 15%. The company stated, "Cartrack delivered record operating profit of ZAR293 million, up 16% (Q2 2024: ZAR252 million). The gross profit margin expanded to 74% (Q2 2024: 71%) and the operating profit margin remains at 29% (Q2 2024: 29%). Karooooo Logistics operating profit grew by 20%."
In an update for the third quarter to 30th November 2024, Karooooo reported that Cartrack's subscribers had increased 17% since 30th November 2023, while subscription revenue rose 19% in US dollar terms. The company added, "Cartrack reported a growth of 7% in operating profit to ZAR316 million (Q3 2024: ZAR295 million). The gross profit margin improved to 74% (Q3 2024: 73%)."
Although the share trades at a price-to-earnings ratio (P/E) of 31,53, making it relatively expensive, its outstanding growth record and rand-hedge qualities make it a compelling investment. We continue to regard this share as a "must-have" for private investors and recommend buying it on any market weakness.
