Published Date: 2021-09-14 | Source: INCE|Community | Author: The Finance Ghost
In case you're wondering, there are five O's in Karooooo (count 'em). I'll get the disclaimer out the way now: Karooooo is a compounder in my portfolio.
A compounder is a business with strong recurring revenues, a durable business model and attractive returns on invested capital. I also look at measures like operating profit margin and free cash flow conversion in making this assessment.
Simply, a compounder is a company that you buy and hold for a long period, allowing gains to build up over time. They obviously don't always work out as planned.
After the initial hype of the Nasdaq IPO for Karooooo, previously called Cartrack, the share price has traded down to where it was before the offshore listing. That's not unexpected to be honest, as I felt the price had become very expensive. I bought at similar levels to where it is trading now.
The company has released an operational update for the quarter ended August 2021, in which subscriber growth was a solid 20%. There's a base effect from Covid in the half-year period (March - August), during which Karooooo added 102,609 new subscribers vs. 48,658 new subscribers in the comparable period.
Interestingly, Karooooo has acquired 70.1% of Picup Technologies for R70m. Picup is an existing system integration partner of Cartrack in South Africa, helping to address the challenges of last-mile delivery. This allows customers to manage their fleets and interact with specialist courier companies and crowd-sourced drivers.
Simply, the offering brings a flexible fleet of delivery drivers and vehicles, which helps companies avoid over-capitalising on vehicles just to meet peak demand periods.
Picup's annualised revenue run rate was R79m at July 31st, so the revenue multiple applied to the acquisition is around 1.25x.
Picup's management team holds the remaining 29.9% and Karooooo has the option to increase the stake to 83.5%.
Institutions looking to take a meaty stake in Karooooo might want to take a bite at the 140,000 shares that Georgem Holdings is looking to sell by the end of February. It's unusual to see a company making announcements about a desired sale by a shareholder, but Karooooo's liquidity is a problem and trying to sell this many shares could hurt the share price if a block trade isn't found.
I'm happy with what I'm seeing from the company, with all eyes on the growth story in Asia going forward.