2023-07-18 08:55:00 ET
Summary
- MiX Telematics combines profitability, low valuation, pristine balance sheet, growth with dividend.
- Outlook is bright with more growth on the horizon thanks also to the company's artificial intelligence offerings.
- MIXT recently increased the dividend, which is a strong indicator that it's confident about its cash flows in the foreseeable future.
- MIXT has repurchased its shares over the last twelve months at an average price of $8.57 per ADS.
- I believe that MIXT could outperform in the next twelve months.
I always go off the beaten path to find outperformers, so I focus on overlooked stocks with zero leverage, among other key positives. One of these names is MiX Telematics Limited ( MIXT ), an application software company (SaaS) from the information technology sector.
And I believe that MIXT could outperform in the next twelve months thanks to many reasons including its artificial intelligence ((AI)) offerings that have passed unnoticed and have not made the headlines so far, given that there is not any reference about them in any of Seeking Alpha's articles about MIXT to-date.
Key Points
There are only two or three Seeking Alpha articles about MIXT every year. This is why I believe that many investors are not familiar with this company, let alone its AI offerings, so I would like to point out the following key points:
1) MIXT is not a new company. MIXT has a long history with a global presence and an annual customer retention rate of 99% , which is a strong indicator about the quality of its services and customer satisfaction, as quoted from the annual report below (emphasis added):
We have a 26-year history and a large global presence, with vehicle subscriptions in over 120 countries across six continents. We currently serve a highly diverse customer base, including 4,800 fleet operators, which represented 69% of our subscription revenue for fiscal year 2023. We target sales of our enterprise fleet management solutions to customers who desire a premium solution, generally for large fleets, which we define as fleets of 50 or more vehicles. Large fleets accounted for over 92% of our fleet subscriptions at March 31, 2023. We believe we have a satisfied customer base and, among our more than 1,000 large fleet operator customers, we experienced an annual customer retention rate of 99% in fiscal year 2023 .
Our DevOps and SaaS operations are ISO 9001 and ISO 27001 certified with a formalized quality policy and consistent monitoring of internal processes, supplier and solution performance. We outsource all hardware manufacturing to third parties.
The high customer satisfaction is also evidenced by the recent fact that a customer in Brazil who had migrated to a competitor returned to MIXT, as quoted below:
Apart from the recent new subscriptions to our fleet management platform in LatAm, we're also proud that a large passenger transport group who migrated to a competitor has returned to MiX, citing our outstanding customer service as their primary motivation . This is a testament that customers get the very best insights from their fleet data and customer support throughout their partnership with us. We are extremely proud to have added more than 3,000 new subscriptions to the expanding MiX Telematics presence in LatAm.
2) MIXT has a diverse customer base with no customer concentration, as quoted from the annual report below (emphasis added):
Our current customer base spans numerous industry categories and customer segments, including oil and gas, transportation and logistics, government and municipal, bus and coach, and rental and leasing. No individual customer represented more than 4.0% of our subscription revenue for fiscal year 2023. For fiscal years 2023, 2022 and 2021, our top 10 fleet customers represented 16.7%, 16.6% and 21.8% respectively, of our total subscription revenue. The following is a representative list of some of its largest customers:
•Halliburton •Schlumberger •Total •Shell •DHL •Europcar •Holcim •Hyper Auto •Baker Hughes •Super Group •Chevron •Rio Tinto •G4S •Nippon •British American Tobacco •Iberdrola •Wincanton •The Linde Group •Weatherford •Nestle
3) MIXT has consistently grown its customer base every year since 2014 (excluding FY 2021 due to Coronavirus),as quoted from the annual report below (emphasis added):
With the exception of fiscal year 2021, we have consistently grown our customer base. As evidence of this growth, subscribers, one of our key operating metrics and a factor influencing our rate of subscription revenue growth, increased at a compound annual growth rate of 10.8% from April 1, 2014 to March 31, 2023 , and as of March 31, 2023, we tracked and managed over 1,001,800 subscribers. As a result of the COVID-19 pandemic, fiscal year 2021 represented the only year of net subscriber contraction over this period of 73,800 subscribers, resulting in a 6.1% reduction in subscription revenue for the period, on a constant currency basis.
and below:
Fiscal Year Ended March 31, | |||||||||||||||||||||||
2021 | 2022 | 2023 | |||||||||||||||||||||
Subscribers | 744,677 | 815,165 | 1,001,881 |
4) Unlike Marvell Technology ( MRVL ), Nvidia ( NVDA ), Palantir Technologies ( PLTR ), C3.ai ( AI ), SoundHound AI ( SOUN ) and BigBear.ai Holdings ( BBAI ), MIXT and its AI offerings have not grabbed the headlines so far.
Specifically, MiX Fleet Manager is the company's premier commercial fleet management solution, and one of the applications supported on MiX Fleet Manager is MiX Vision AI video telematics, as quoted from the annual report below (emphasis added):
MiX Vision AI is a fully integrated, connected camera solution with a built-in artificial intelligence processor which uses Machine Vision based Video Analytic technology to detect or monitor road events (ADAS) such as un-signalled lane departure, forward collision and following distance (also known as Headway Monitoring Warning) and unsafe driver behaviour ((DSM)) such as fatigue, distraction, smoking, unfastened seatbelt and phone usage. The MiX Vision AI infra-red capabilities ensure clear footage is captured at night and can alert the driver in real-time of dangerous behaviours by triggering a voice warning and audible or visual notifications with the optional AI Driver coach (R-Watch). The MiX Vision AI will also upload events (and the respective video recordings) to the MiX Fleet Manager platform where they can be reviewed by a fleet manager. They can be used for coaching the drivers, therefore reducing risks and ensuring safe trips. The device also supports Incab recording full colour images with wide-angle view of the cab with built in microphone to record audio.
And MIXT's AI offerings have not grabbed the headlines so far, despite the fact that they have been launched since 2021 and have lately attracted strong interest .
In other words, MIXT launched them before Alphabet's ( GOOG ) and Microsoft's ( MSFT ) AI offerings , as quoted from the annual report below (emphasis added):
Customers can also subscribe to premium subscription-based applications supported on MiX Fleet Manager, such as:
MiX Vision AI, an on-road and in-vehicle video recording solution, that allows fleet managers to record video footage related to driving behavior and events. We believe MiX Vision addresses an important market need for in-vehicle surveillance and driver feedback. MiX Vision is fully integrated with our premium fleet management solutions to enable event-driven or time-based video recording and supports external cameras as well as an in-cab Driver Status Monitor. MiX Vision AI was launched in calendar year 2021 and we have seen strong interest in this new solution which leverages machine vision and artificial intelligence technologies to detect driver distraction, fatigue and other unsafe driving practices such as cell-phone use and smoking .
That said, I project that the MiX Vision AI will be one of the company's key growth drivers in the next years, and you can find more about it in the next paragraphs.
Revenue Growth, Profitability, Pristine Balance Sheet
Revenue for FY 2023 increased to $145.0 million compared to $143.3 million for FY 2022. The reason for the slight YoY increase is that:
The majority of the Company's total revenue and subscription revenue are derived from currencies other than the U.S. Dollar. Accordingly, the strengthening of the U.S. Dollar against these currencies following currency volatility, has negatively impacted the Company's revenue and subscription revenue reported in U.S. Dollars.
However, revenue increased by 10.3% on a constant currency basis, which represents better the top line YoY growth. Gross profit margin in FY 2023 is high and has largely been flat at 62.7% compared to 63.8% for FY 2022. Furthermore, MIXT remained profitable for another year in a row. Specifically, income from operations in FY 2023 was $11.6 million compared to $14.4 million in FY 2022. The YoY drop was due to the fact that operating expenses of $79.3 million increased by $2.3 million compared to FY 2022. The increase in operating expenses in FY 2023 was mainly due to a $0.8 million and $0.9 million increase in acquisition-related costs and restructuring costs, respectively. Adjusted EBITDA in FY 2023 declined slightly at $29.6 million compared to $31.6 million for FY 2022.
It's also noteworthy that MIXT does not have any debt problems. Specifically, MIXT has net cash position of $15 million (March 2023), so it has zero leverage and can afford to fund its organic and inorganic growth in the foreseeable future.
As also noted above, MIXT recently passed a million active subscribers and continues to be profitable while also generating strong positive free cash flow in the first months of FY 2024, according to the CEO's latest statements below (emphasis added):
Closing out the fiscal year, we are exceptionally proud to have surpassed this significant milestone. We also expanded our adjusted EBITDA margin to 25% and continue to generate strong, positive free cash flow. As we move into fiscal year 2024, despite general uncertainties in the macro-economic environment, we remain confident that we have what it takes to maintain our balanced approach to growth while also delivering strong cash flow and profitability . I would like to take this opportunity to sincerely thank our teams across the globe for their commitment to delivering great products and services to our customers. Everyone has worked extremely hard to achieve this milestone and deliver this strong set of results.
Low Valuation
MIXT has a net cash position of approximately $15 million (as of March 2023), so its Enterprise Value at the current price of about $7 per ADS is approximately $140 million.
Revenue and adj. EBITDA in FY 2023 were $145 million and $29.6 million, respectively. Therefore, EV-to-FY 2023 Revenue and EV-to-FY 2023 adj. EBITDA are 0.9 times and 4.7 times , respectively.
There is no question that both key multiples are low on absolute and relative valuation analysis. Actually, many other SaaS names have much higher key multiples, although they are unprofitable and/or don't pay a dividend such as NEWR, HCP, WK, EVCM, INFA, PD, PWSC, BOX, SMAR, FRSH, BRZE and ASAN, to name some.
Thanks also to a handful of reasons (i.e. AI offerings, growth initiatives, bright outlook, pristine balance sheet etc.), I forecast that revenue and adj. EBITDA will go up in FY 2024, so I project that the aforementioned key multiples will go even lower in the next twelve months.
Outlook and Growth Drivers
I believe that MIXT will continue to grow its business in the foreseeable future thanks to a handful of tailwinds. Specifically:
1) Industry trends are favorable, as quoted from the annual report (emphasis added):
Global and multinational companies are increasingly looking to consolidate their fleet management systems by moving to providers that have global reach. This is primarily driven by the desire to have a secure centralized view across their fleets and impose set global standards specifically relating to driver management and safety. These companies also recognize the advantages of gathering vast quantities of data to draw new insights into their global fleet operations.
A research publication by Berg Insight says the integration of cameras to enable various video-based solutions in commercial vehicle environments is one of the most apparent trends in the fleet telematics sector today. Growing at a compound annual growth rate ("CAGR") of 18.0% they forecast that the active installed base of video telematics systems will reach almost 8.8 million units in North America by 2027. In Europe, the active installed base is forecasted to grow at a CAGR of 17.9% to reach 2.5 million video telematics systems by 2027. The video telematics market is served by many companies including video specialists, fleet telematics players and hardware-focused suppliers. With MiX Vision AI which was launched in fiscal year 2022 and enhanced with multiple software and hardware updates in 2023, we are meeting an ever-broader range of needs in the video telematics market .
2) There is market opportunity due to low market penetration, as quoted from the annual report (emphasis added):
We believe that the addressable market for our fleet management solutions is large, growing and remains largely under-penetrated. According to a report by ABI Research ("ABI"), there were approximately 230 million commercial vehicles registered globally by the end of December 2022. Global fleet management penetration was estimated to reach 23% . ABI forecasts that by 2030, the number of registered commercial vehicles will be approximately 287 million.
In addition to the growing market opportunity in commercial fleet vehicles, we believe there is a large and under-penetrated market to provide a tailored set of safety and security solutions to non-commercial passenger vehicles. Worldwide, the pool of motor vehicles is large and growing, particularly in developing markets. We estimate that there are approximately 7.7 million non-commercial passenger vehicles in operation in South Africa, as of April 2023, utilizing latest vehicle population information available from the National Traffic Information Systems. We believe the potential rate of consumer adoption of mobile asset management solutions is highest in developing regions where vehicle tracking and monitoring features can help to improve driver and passenger safety, reduce the impact of theft by improving stolen vehicle recovery rates and reduce consumer automotive insurance rates.
3) MIXT offers a range of solutions to address the needs of its customers, and its subscription-based offerings include advanced artificial intelligence and machine learning, as quoted from the annual report below (emphasis added):
Advanced artificial intelligence and machine learning: Our solutions are utilizing the latest technology to deliver customer value, including our MiX Vision AI video telematics offering , which uses machine learning and artificial intelligence to protect drivers in real-time from dangerous driving scenarios such as fatigue and distraction.
and:
Principal features associated with our subscription-based offerings include the following: Vehicle and driver management: We provide functionality for customers to manage licenses, registrations, certifications, in-vehicle video monitoring and other vehicle and driver requirements. Our advanced AI video capabilities protect drivers from risky driving scenarios such as fatigue and distraction .
When it comes to MiX Vision AI, the company upgraded it in FY 2022 and expanded it in FY 2023, as quoted from the annual report below (emphasis added):
During fiscal year 2022 we launched a new MiX Vision AI solution and an embedded analytics and dashboard platform leveraging a new data lake. We also developed a Canadian ELD solution for MiX Fleet Manager which was certified and released in fiscal year 2023, integrated with various OEM telematics data services and delivered various updates to our hardware platform in response to the global electronic component crisis. In 2023 , we also launched our KPI management module for clients to visualize their key value realization insights as well as updates to our MiX Vision AI solution , which provided more options to cater for additional vehicle types and industry specializations.
and:
In fiscal year 2023, we expanded our MiX Vision AI portfolio , adding support for additional cameras and enhanced software features.
4) MIXT is interested in expanding its business in the next years through organic and inorganic growth, as quoted from the annual report below (emphasis added):
Acquiring new customers and increasing sales to existing customers: We believe the market for fleet and mobile asset management solutions is large and growing, creating a significant opportunity for us to expand our customer base. Additionally, we believe we have the opportunity to expand our fleet management market share among our existing customer base by demonstrating our value proposition, growing with the customer, introducing new and innovative value-added solutions and displacing legacy fleet management solutions.
Pursuing strategic acquisitions: Our industry is highly fragmented. We intend to selectively evaluate acquisition opportunities in certain geographic regions and industry segments.
Dividend Hike And Dividend Sustainability
Net cash provided by operating activities for FY 2023 increased to $21.9 million compared to $19.4 million net cash provided by operating activities for FY 2022.
Net cash used in investing activities for FY 2023 was $28.8 million, which includes $3.7 million for the acquisition of Trimble's FSM business that took place in Q2 FY 2023. Therefore, MIXT burned $3.2 million in FY 2023 (excluding acquisitions).
However, here is the key point. Investors need to take a deeper dive into the cash flow report to get a better understanding on the big cash flow improvement in H2 FY 2023 compared to H1 FY 2023. Specifically:
1) According to the cash flow report, the annual dividend payment in FY 2023 is $5.2 million, so the quarterly dividend payment is $1.3 million .
2) In Q3 FY 2023, operating cash flow was $11.2 million and quarterly CapEx was $5.3 million. Therefore, quarterly free cash flow was $5.9 million .
3) In Q4 FY 2023, operating cash flow was $9.2 million and quarterly CapEx was $5.7 million. Therefore, quarterly free cash flow was $3.5 million .
In other words, free cash flow in Q3 and Q4 FY 2023 was much higher than the quarterly dividend payment, with the payout ratio in the second half of FY 2023 being below 50% .
On top of this, the CEO recently stated that MIXT continues to be profitable while also generating strong positive free cash flow, as quoted in the previous paragraph. This is why MIXT recently increased its quarterly dividend by 12.5%, so the yield is 3% at the current price of about $7 per ADS, as quoted below (emphasis added):
The last recent dividend payment of 4 South African cents (0.2 U.S. cents) per ordinary share and 1 South African Rand (5 U.S. cents) per ADS was paid on March 2, 2023 to ADS holders on record on February 17, 2023. A dividend of 4.50000 South African cents per ordinary share and 1.12500 South African Rand per ADS will be paid on June 29, 2023 to ADS holders on record as of the close of business on June 16, 2023.
This dividend increase is a strong indication that MIXT is confident about its growth and future cash flows in the next quarters. In my opinion, MIXT would not increase the dividend, if it believed that its operating cash flow would not be positive and its free cash flow would not fully cover the annual dividend payments in the foreseeable future.
High Insider Ownership
According to the latest proxy statement (July 2022) , insiders own 27.8% , so their interests are aligned with shareholders', as illustrated below:
Shares Beneficially Owned | ||||||||
Name of Beneficial Owner | Number | Percentage | ||||||
Named Executive Officers and Directors | ||||||||
S Joselowitz | 19,499,579 | 3.5% | ||||||
J Granara | 197,430 | * | ||||||
P Dell | 61,000 | * | ||||||
C Tasker | 5,534,807 | * | ||||||
G Pretorius | 1,254,403 | * | ||||||
C Lewis | 2,085,939 | * | ||||||
R Frew | 87,267,766 | 15.8% | ||||||
R Bruyns | 3,696,563 | * | ||||||
I Jacobs | 34,096,150 | 6.2% | ||||||
C Flemming | - | -% | ||||||
F Futwa | - | -% | ||||||
All executive officers and directors as a group | 153,693,637 | 27.8% | ||||||
* Less than 1%. | ||||||||
Principal Shareholders
Many funds invest in the small-caps, because institutional investors commonly compare their own returns to the returns of a commonly followed index and the small-caps historically outperform the large-caps.
That said, there are institutions who own a respectable stake in the company. Specifically, according to the latest proxy statement (July 2022), the beneficial owners of more than 5% of MIXT's common stock are illustrated below:
Shares Beneficially Owned | ||||||||
Name of Beneficial Owner | Number | Percentage | ||||||
Holders of Greater Than 5% of total shares outstanding | ||||||||
Masalini Capital Proprietary Limited | 60,410,880 | 10.0% | ||||||
Disciplined Growth Investors, Inc. | 47,983,725 | 7.9% | ||||||
Edenbrook Capital, LLC | 40,861,725 | 6.7% | ||||||
Share Repurchases
MIXT has repurchased its shares over the last twelve months at an average price of $8.57 per ADS (1 ADS is 25 ordinary shares), as quoted below:
In the fourth quarter of fiscal year 2023, the Company repurchased 838,431 ordinary shares on the open market for a total consideration of $0.3 million. For the full fiscal year 2023, the Company repurchased 1,166,659 ordinary shares on the open market for a cumulative consideration of $0.4 million.
Risks
First, MIXT is a small-cap stock with relatively low daily volume due to a combination of reasons (i.e. lack of awareness, limited analyst coverage , high insider ownership), so high volatility is likely. Therefore, MIXT is not for day traders, momentum traders or short-term traders. Instead, the potential buyers need to have a 12-month investment horizon (at least).
Second, MIXT may not continue to be successful in expanding its business internationally, and may not be able to increase its revenue and its subscribers in the next years.
Third, MIXT may acquire companies that will not deliver results according to the original expectations or may experience a post-acquisition integration failure.
Fourth, MIXT has presence in more than 120 countries globally, so it's exposed to currency risks. Specifically, a strong dollar could erode underlying revenue growth as revenue is converted to dollar.
Takeaway
Fundamental strength is a key driver behind stock price performance. And MIXT's fundamentals are robust. Additionally, MIXT has low key multiples, no matter how you slice it, while also paying a sustainable dividend. On top of this, more growth is on the horizon. And it can be organic growth (i.e. AI offerings) and inorganic growth (i.e. acquisitions), according to the CEO's statements above. After all, I forecast that its stock has strong potential for big capital gains in the foreseeable future.
For further details see:
MiX Telematics: AI, Low Valuation, Pristine Balance Sheet, Growth, Dividend