Quartix Holdings — Fleet business powers 2017 growth

Quartix Holdings — Fleet business powers 2017 growth

Quartix is a UK-based telematics firm with growing recurring revenues from fleets in the UK, US and France as well as a driver monitoring system ‘Powered-by-Quartix’, which it sells into the insurance and fleet markets. The group has been investing heavily in building marketing and distribution in the US and France, which has had a negative effect on costs in recent years. Nevertheless, the potential from these markets adds to what we see as Quartix’s “invest for a generation” features, which include high 70% recurring revenues, low customer churn (10%), major management buy-in (CEO Andy Walters owns 37%), a cash-rich balance sheet and FY17 yield of 3.8%. The stock trades at a substantial premium to the sector on an FY18e P/E of 29.5x, but for long-term investors this may be a price worth paying.

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Quartix Holdings

Fleet business powers 2017 growth

Software & comp services

QuickView

27 February 2018

Price

360p

Market cap

£171m

Share price graph

Share details

Code

QTX

Listing

LSE

Shares in issue

47.6m

Business description

Founded in 2001, Quartix (QTX) is a leading UK provider of tracking and telematics data analysis solutions for commercial fleets and ‘pay as you drive’ motor insurance. Expansion into the French and US fleet markets has helped QTX achieve a 22% CAGR in fleet tracking subscriptions over the last five years.

Bull

Strong SaaS growth prospects in the US & French markets and in the UK via sales channel optimisation.

Quality business: 70% recurring revenues, strong profit focus, low attrition, net cash BS, own IP.

Well positioned to benefit from new regulation and rise of PAYG insurance demand impetus.

Bear

Trades at a c 67% premium to FY18e P/E.

Increasing telematics installations by OEMs is a long-term threat but most fleets will still need analytics services to work for all vehicle brands and ages.

The intermittent rise of cut-price competitors in the product arena, eg in driver safety, is a potential source of volatility in the product stream.

Analysts

Anna Bossong

+44 (0)20 3077 5737

Richard Jeans

+44 (0)20 3077 5700

Quartix is a UK-based telematics firm with growing recurring revenues from fleets in the UK, US and France as well as a driver monitoring system ‘Powered-by-Quartix’, which it sells into the insurance and fleet markets. The group has been investing heavily in building marketing and distribution in the US and France, which has had a negative effect on costs in recent years. Nevertheless, the potential from these markets adds to what we see as Quartix’s “invest for a generation” features, which include high 70% recurring revenues, low customer churn (10%), major management buy-in (CEO Andy Walters owns 37%), a cash-rich balance sheet and FY17 yield of 3.8%. The stock trades at a substantial premium to the sector on an FY18e P/E of 29.5x, but for long-term investors this may be a price worth paying.

Back to double-digit growth after insurance pull-back

The group increased its fleet subscriber base by 20% to 105,200 in FY17. Sales channel optimisation drove 16% growth in the UK subscriber base to 83.2k while expanding marketing channels and investment in management led to the French and US subscriber bases growing by 31% and 48%, to 13.0k and 9.1k respectively. This helped fleet subscription revenues, which make up 70% of group revenues, grow by 14%. Nevertheless, group revenue rose by only 5%, (10% y-o-y in H217) due to management’s decision to withdraw from lower-margin sales to insurers, a reflection of its ongoing focus on profitability.

Growing pains, future gains

The recruitment of new management, higher share-based payment expense and expansion into new marketing channels in the US and France affected overall costs and contributed to a 1.0pp decline in the FY17 EBITDA margin to 27.7%. Management intends to increase marketing spend in the US in FY18 to build a network of distributors to leverage staff investments and implement a new marketing automation platform in H217. We expect this strategy to contribute to earnings momentum from FY19 helped by the strong R&D-fed product pipeline.

Valuation: Quality comes at a price

Quartix trades on relatively high valuation multiples, with its FY18e P/E of 29.5x sitting at a c 67% premium to the telematics sector. We believe this reflects the group’s strong growth prospects and defensive features, as discussed above, as well as the support of its current yield. The tightly held nature of the stock, with its low free float of 26%, should be noted by investors requiring liquidity.

Historical financials and consensus estimates

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/15

19.7

6.0

10.5

6.0

34.3

1.7

12/16

23.3

6.5

12.8

11.2

28.1

3.1

12/17

24.5

6.6

12.3

13.5

29.3

3.8

12/18e

26.2

6.8

12.2

10.2

29.5

2.8

Source: Thomson Reuters

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Disclaimer

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison's solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are "wholesale clients" for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a "personalised service" and, to the extent that it contains any financial advice, is intended only as a "class service" provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited ("FTSE") (c) FTSE [2018]. "FTSE(r)" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Laboratorios Farmacéuticos ROVI — Steady as she grows

Laboratorios Farmacéuticos ROVI (ROVI) reported FY17 operating revenue of €275.6m (+ 4%), driven by strong growth in the toll manufacturing business (+8%). The speciality pharmaceutical business grew 3%, within which biosimilar enoxaparin reported fledgling sales of €1.5m despite only being available in Germany since September 2017. This asset remains a key driver of top-line growth in the near term and operating profit growth in the medium term. The R&D pipeline progressed in 2017 with the long-acting DORIA (schizophrenia) and letrozole (breast cancer) having entered Phase III and Phase I clinical-stage development respectively. Our revised valuation is €0.96bn.

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