Karooooo a great company at a good price

Wayne McCurrie from FNB Wealth and Investments said Karooooo is a great company and offers a buying opportunity following price weakness in recent months.

Karooooo released its Q3 2023 results last week, which showed strong revenue growth but weaker earnings growth.

Karooooo generated R930 million in revenue for the quarter, translating into a 29% year-on-year improvement.

The strong growth continues the trend over the last two years and bodes well for the company’s prospects.

The company reported a net income of R145.6 million for the quarter – a slight decrease from the previous comparable period’s R146.2 million net income.

Karooooo CEO and founder Zak Calisto said their vertically integrated business model and focus on product improvement and innovation differentiate them from their peers.

“We now have over 100,000 active commercial customers digitalising and optimising their operations on Karooooo’s Operations Cloud,” he said.

“We have minimal customer or industry concentration risk and pride ourselves on consistent and strong subscription revenue growth.”

Speaking on Business Day TV, McCurrie said Karooooo is a top-notch company that has been around for a long time.

“Its latest results showed strong subscriber growth. It is a proper growth company that deserves a high rating,” he said.

“I’ve met the management, and they know what they are doing. It is a global company with good growth opportunities,” he said.

David Shapiro from Sasfin Securities added that Karooooo’s results are always good, but it is worrisome that the share price has not increased.

Over the last year, Karooooo’s share price declined by 27% despite showing strong subscriber and revenue growth.

One of the problems is that Karooooo is thinly traded, which causes significant shifts in the share price.

“On the strength of Karooooo’s numbers, its share price deserves to be much higher. I don’t understand what is holding it back,” he said.

One possibility is that Cartrack delisting from the JSE and then listing on the Nasdaq as Karooooo, with a secondary listing on the JSE, did not work as planned.

Shapiro highlighted that a few South African tech companies, like Net1 and Datatec, tried this strategy and failed.

Karooooo is a tiny company compared to others listed on the Nasdaq, and it is difficult to attract the attention of investors among such strong competition.

Commenting on these issues, Calisto told Daily Investor trying to unpack market valuations can be tricky, and they also understand that there is no guarantee of immediate gratification.

“We believe that the low valuation is a result of the low liquidity,” he said. “We do have plans to sort out the liquidity over time. However, we are conscious that our priority must be on growing the business.”

He said their Nasdaq listing was definitely worth it, and they expect to reap the benefits over time.