Why Karooooo's Positive Telematics Market Prospects Impress BofA Analyst

Karooooo Ltd KARO could sustain revenue growth of more than 18% through 2023, driven by share gains and product expansion in South Africa and telematics expansion in other key regions, according to BofA Securities.

The Karooooo Analyst: Daniel Bartus initiated coverage of Karooooo with a Buy rating and a price target of $52.

The Karooooo Thesis: Founded in South Africa, the company has now expanded to other regions of Africa, Asia and Europe, although South Africa contributes around 72% of revenues, Bartus said in the initiation note.

“We view Karooooo as a unique asset, from its regional footprint to its roots in stolen vehicle recovery,” the analyst wrote.

“Today, we estimate that ~40% of subscribers are consumers and 25% of revenue continues to be tied solely to vehicle theft prevention. The remaining 75% of revenue represents Karooooo’s evolution into a commercial fleet telematics leader, especially in key emerging markets that are usually underserved by larger competitors,” he added.

There are two ways in which Karooooo can expand. First by increased telematics penetration in its current regional market and expanding to new regions in the longer term, and second by “new offerings in the core South African region, such as insurance technology and used car trading,” Bartus noted.

“With 95%+ of revenue related to subscription and 25%+ operating margins, we think Karooooo also offers an attractive balance of growth and margins vs our SaaS universe,” he added.

KARO Price Action: Shares of Karooooo had risen by 5.41% to $39 at the time of publication Tuesday morning.

(Photo by Obi Onyeador on Unsplash)