Wall Street analysts bullish on Karooooo, Cartrack owner, as it turbocharges growth

Global analysts expect massive growth in the vehicle tracking industry in the next five years, with a major market report noting that investors haven’t yet cottoned on to the huge growth in this sector – partly because they don’t understand it. This week, excitement among Wall Street analysts was palpable at a presentation by Karooooo CEO and founder Zak Calisto, his first after the company listed on the Nasdaq last month. Smarteranalyst.com reports that Karooooo is tipped as a ‘strong buy’ among top analysts in the United States. Karooooo, which owns Cartrack, is a South African business success story, adding about 60% new subscribers in the fourth quarter to February 28 2021. In this interview with BizNews, Calisto shares why the company is confident it is going to continue to scale up and grab market share across the globe. Karooooo has a secondary listing on the Johannesburg stock exchange. – Jackie Cameron

Zak Calisto, CEO of Karooooo, on how the company managed to achieve excellent results in a tough year:

If we look at our budgets, even before FY21, we had planned a really good year. We were at our best. Clearly, when Covid came it’s something that I personally never thought I would ever experience in my life. Obviously, we had to adapt. It took us a bit of time to reorganise ourselves. We’ve got a really good team and we’ve seen the last two quarters of last year and even the first two months of this financial year. I think we just keep on acquiring customers and doing what we wanted to do 12 months ago, if that makes any sense. We’re just sort of delayed and we’re quite anxious to see Covid out of the way.

On disadvantages facing the company with regards to changing Covid-19 containment measures:

Singapore has got a very strong government. It’s a small city. One could call it a country, but fundamentally, it’s a fraction of the size of Johannesburg. It’s a well run country with very little Covid. At this point in time there’s about, if I’m not mistaken, 10 cases a day. And that is very alarming for Singapore. They have basically tightened their borders – it’s now three weeks quarantine. It was already difficult – or nearly impossible – to travel.

It’s nearly impossible to travel to countries like Indonesia, the Philippines or Thailand, but now it’s even more difficult to travel – even if you want to leave to Europe or South Africa, because when you come back it’s three weeks quarantine. The restrictions are getting tighter, if that makes any sense. Despite all the vaccination and the lower levels of Covid compared to 12 months ago, we’ve seen the restrictions in certain countries actually getting tighter. there’s a lot of uncertainty when this will all end.

On the company’s growth projections:

We’re growing really well. In fact, at this point in time. our annualised growth is better than before Covid. What we want to do is accelerate our growth. What this does, is allow us to have to focus on our key markets. Our markets where we haven’t got very strong management, they have to take a back seat while we focus on the markets where we are strong. Our senior management isn’t able to get out into those markets and do it face-to-face meetings, grooming, staff guidance and recruiting. We are not recruiting anyone in those markets.

On why some people aren’t too pleased with the company growing so quickly:

If you start growing too fast, in terms of acquiring too many customers, it can actually take your profits. It can have a negative impact on your short-term profits, because the cost of growth you [can] see in [your] operating expenses. But you certainly get that value back in two-five years time.  In the past, when we started growing too fast, our profitability and cash flows were negatively impacted.

They were still very healthy and our capital allocation was very disciplined. There was absolutely no issue with that. But what we found is a lot of the investors – specifically in South Africa – are very conscious of receiving dividends and want to see the bottom line growth. It’s very important, that bottom line growth. And sometimes the bottom line growth might be a bit slower than the top line growth.

On the possibility of acquisitions:

If it made sense we’d certainly look at it. Acquisitions are always a difficult thing to do, because it’s integrating two potentially different cultures into different organisations – that can be quite challenging. But if we did, we’d obviously do it in a very prudent way. We certainly believe, at some stage, there will be opportunities for mergers or acquisitions. At this point in time, we’re in the top 10 companies in the world, in our space. I certainly believe there will be multiple winners, but I don’t see there being more than 10 companies of our nature in the long-term. Given there’s probably 500 or a thousand (or even more) companies in our sector, we believe over time there will be space for mergers or acquisitions at the right time.

On the move to NASDAQ:

I’ve been kept very busy for the last few months. I would have rather been busy, operationally, [with] the business. I think, overall, it’s going to be a very good experience. It’s going to certainly add tremendous value to our business – to be able to tap into the capital markets like the US. I certainly believe we’ll get a fair valuation of all our shareholders. I’m long in the business – I own 66% of the company.

I believe in the long-term part of the business. I think whoever buys it at R42 has got himself a good deal. That’s a very personal [thought] – I’m not in a position to give professional advice regarding [that].

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