Our opinion on the current state of KRO

Cartrack, now operating under the name Karoo (KRO) since its international re-listing on 21st April 2021, is a global player in the vehicle recovery, insurance, telematics, and fleet management industry, with operations across twenty-four countries. Boasting an impressive 92% recovery rate, which it claims to be the industry's best, Karoo demonstrates strong and rapid organic growth. Over the past six years, the company has achieved a 21% compound annual growth rate in its subscriber base. A significant portion of the company's revenue, approximately 96%, is derived from annuity income, providing a stable and predictable cash flow.

The company's founder, Zak Calisto, holds a substantial 68.5% stake in the Singapore-based firm, "Karooooo." Karoo's business model, characterized by its rapidly growing annuity income and its ability to hedge against the rand, makes it an attractive investment opportunity, especially for private investors. It has garnered considerable interest from institutional investors, underpinned by its virtually nonexistent working capital requirements and the assurance that its overheads are covered at the beginning of each month thanks to its annuity income.

Karoo's decision to list on the NASDAQ, with an inward listing on the Johannesburg Stock Exchange (JSE) announced on 7th December 2020, has opened avenues for international fundraising. For the six-month period ending on 31st August 2023, Karoo reported a 15% increase in Cartrack subscribers, totaling 1.832 million, and a 21% revenue increase, with subscription revenue rising by 17%. Earnings per share (EPS) also saw growth, moving from 493c to 561c. The company highlighted a record operating profit of ZAR252 million for the second quarter of 2024, up 13% from the previous year, with a consistent gross profit margin and a slightly adjusted operating profit margin.

Continuing its growth trajectory, Karoo reported a 16% revenue increase and a 14% rise in Cartrack subscribers to 1.9 million for the third quarter ending on 30th November 2023. Furthermore, on 12th February 2024, the company announced a share buyback plan, aiming to repurchase up to 1 million of its own ordinary shares in the market.

Despite a relatively high price-to-earnings (P:E) ratio of 24.7, Karoo's remarkable growth record and its status as a rand hedge position it as a compelling investment for private investors. The share is considered a "must-have" investment, offering a blend of growth potential and financial stability.