Karooooo: A Goldmine of Data (NASDAQ: KARO)
Karooooo Ltd. (NASDAQ: KARO) is a full-fledged smart mobility platform for online automobiles that was originally launched in South Africa to aid in the recovery of stolen vehicles. With its software as a service [SaaS] architecture, Karooooo maximizes the value of data collected from tracking and mobile asset monitoring.
From initial idea to final product, KARO has full creative and operational control over its intelligent hardware, platforms, software and customer support. The system acts as the central nervous system of a fleet of connected vehicles, allowing managers to keep tabs on every vehicle in the fleet from one convenient location. When it comes to helping its customers, KARO says its product excels in the areas of efficiency, productivity, longevity and regulatory compliance.
We know that digital transformation doesn’t happen overnight. We therefore work in partnership with our clients to guide them through the various stages of creating their business.
Zak Calisto, CEO
The company operates in South Africa, Rest of Africa, Europe, Asia/Pacific/Middle East/USA and USA. Africa-Other includes Mozambique, Tanzania, Kenya, Namibia, Nigeria, Botswana, Malawi, Rwanda, Eswatini and Zimbabwe. The Europe section of the European Union includes Portugal, Poland and Spain. The Asia-Pacific, Middle East and US region includes Singapore, Thailand, the Philippines, Hong Kong, Malaysia, Indonesia and the United Arab Emirates. [UAE], New Zealand and the United States. On May 19, 2018, the Singaporean company officially opened its doors.
There is a great addressable market opportunity for Karooooo as they are a forerunner in this industry. Given the company’s significant growth potential, it’s easy to see why the CEO is so confident in his future capabilities. The management is always trying new ideas and methods. The company, according to CEO Zak Calisto, is interested in more than connected cars. Carzuka, its new line of business, is an online marketplace for buying and selling automobiles that will revolutionize the used car market by making it easier to market, buy, sell, finance and auto insurance with full telemetry data.
Karo is uniquely positioned due to the nature of the software the company operates, which allows it to see and analyze billions of data points across a multitude of industries. This information and knowledge can prove vital to Karo’s continued growth.
We have a very diverse customer base, ranging from consumers to small, medium and large businesses. We understand that all of these companies are very different, given that they operate in different industries with different types of vehicles active at 3 different operations… And given that all the data we collect through the app on different industries and there has billions of data points we collect monthly. This allows us to take knowledge to give business intelligence reports that the learnings we have had from a country or industry and help other businesses, and it has been able to gather all this data and understand that each client is their own challenges. And putting it all together is really what we do to be able to help our customers digitally transform their operations.
Zak Calisto, CEO
Company financial statement
Despite a healthy operating margin, Karo has been unable to return to the 70% gross profit margins it enjoyed before inflation turned inflationary again. To weather the inflationary storm, however, Karo maintained an exponential return on invested capital throughout this period. Debt reduction efforts continued apace, resulting in net debt of -$33.43 million at the start of fiscal 2022.
In 2022, Karo’s share price fell along with the market. As a result of this decline, Karo’s valuation multiples are once again in line with the company’s real growth prospects. A new focus on supply chain management is likely to cement Karo’s position as a market leader if the company succeeds in further increasing its importance in the daily processes of large institutions and SMEs.
Karo has a significant premium to median price and EV multiple over many of its software service provider peers. The growth curve and the economic model are additional contexts in which this must be considered. As can be seen in the table below, Karo has the largest gross revenue and operating margins compared to its competitors. This, together with a significant premium in ROE and ROIC, justifies the high valuation.
Karo presents the characteristics of a company in the process of continuous long-term growth. Karo can be seen as a thematic piece on the continued growth in supply chain management spending due to COVID. The financial condition of the balance sheet and the resilience of the ROE and ROIC are important pillars of risk reduction. Karo is a long term buy for us and has a medium level of risk which is attributed to the inability to materialize the relationships and data collected on these companies and industries.