South African-founded tech company making waves globally

Karooooo is one of the best-performing technology companies on the Johannesburg Stock Exchange (JSE), with its share price increasing by 46% over the last year.

The company’s share price performance was driven by Karooooo’s steady revenue and earnings growth and its successful global expansion.

Karooooo is headquartered in Singapore and is best known for its Cartrack software-as-a-service platform, which provides real-time data analytics and business intelligence.

Although the company is based in Singapore, it has its roots in South Africa, which remains a core part of its operations.

Zak Calisto, the founder and CEO of Karooooo, started Cartrack as a joint venture with Netstar in South Africa in 2001.

Before he started Cartrack, he worked at Cell Communications from 1994 to 1996 and Vehicle Tracking Services from 1994 to 2001.

This experience positioned him perfectly to start a company in the vehicle tracking space, combining the best technologies available at the time.

Cartrack separated from Netstar in 2004, and under Calisto’s guidance, it became a powerhouse in tracking, data analytics, and business intelligence in South Africa.

In April 2021, Calisto delisted Cartrack from the JSE and listed Karooooo, which wholly owns Cartrack, on the Nasdaq, with a secondary listing on the JSE.

He explained that they decided to list on the Nasdaq because it offered them a long-term financial platform to service an international company.

“We thought it was important to go to the Nasdaq but also remain inward listening into the JSE, allowing South African shareholders to continue participating in our vision,” said Calisto.

Although Karooooo’s share price did not initially do particularly well, it gained momentum over the last year.

The share price increased 46% over the last twelve months and 42% year-to-date. This makes it one of the best-performing shares on the JSE.

Karooooo’s operational performance

Karooooo delivered exceptional performance and is one of the few South African companies that have successfully expanded internationally.

It has a presence worldwide, including South Africa, the Rest of Africa, the Asia Pacific, the Middle East, the United States, and Europe.

All operating regions have delivered strong double-digit subscriber growth rates, with particular momentum delivered from Asia Pacific, the Middle East, and the United States.

Karooooo increased its global subscriber base from 1.37 million to 2.05 million between 2021 and 2024.

Revenue and Profit

Karooooo’s subscriber growth translated into strong revenue growth. Group revenue grew by an average annual rate of 24% over the last three years.

Its two main operating segments are Cartrack and Karooooo Logistics. Both segments delivered good revenue growth and, more importantly, were operationally profitable.

The company’s latest quarterly report showed that Cartrack reported quarterly operating profits of R287.2 million and Karooooo Logistics R13.4 million.

Karooooo Logistics was formed after Karooooo bought a 70.1% stake in Picup for R70 million in 2021 and rebranded the company.

Since the acquisition, it took Karooooo 12 months to transform the segment from an operational loss-making company to one that delivered operating profits.

In the past year, Karooooo Logistics reported operating profits of R35 million, meaning, at this rate, the acquisition has been a big success.

The group’s profitability has increased strongly, with an average annual quarterly net income growth of 31% since July 2021.

Cost Management

Cost management plays an important role within an organisation, and Karooooo has done an impressive job in this department.

As businesses grow, investors want to see economies of scale reducing proportional costs. It is fruitless for a company to increase its revenues while losing control of the costs.

Karooooo has managed its costs well, which has allowed the company to translate its revenue growth into attractive profits.

While its cost of goods sold (COGS) increased from 29% of revenue in June 2021 to 31% of revenue in June 2024, its operating expenses, finance costs and taxes have done the opposite.

Over the same period, Karooooo has lowered its operating expenditure (OPEX) from 44% of revenue to 41%.

Similarly, it lowered its Finance costs and taxes from 13% to only 7%. The combination of these events had a net positive impact on the group’s net profit margin.

Karooooo’s net profit margin increased from 14% to 20%, which is exactly what investors would like to see from a company.

Financial health and valuation

Karooooo has a healthy balance sheet. The group’s debt ratio was lowered from 56% in 2021 to 31% in 2024, meaning that only 31% of the group’s assets are financed with liabilities.

When considering Karooooo’s liquidity and ability to pay off its short-term obligations, it also points to significant improvements.

Karooooo’s current ratio improved from 1.15 in 2021 to 1.52 in 2024. This means the company can cover its short-term liabilities 1.52 times with only its short-term assets.

An even more impressive metric is Karooooo’s cash ratio, which increased from 0.16 in 2021 to 0.94 three years later.

That means Karooooo can cover 94% of its short-term liabilities with just cash and cash equivalents.

The low leverage and high liquidity paint a picture of a company with low levels of credit risk and no high debt costs.

Karooooo’s valuation ratios show that investors have gained trust in the company to continue its strong performance.

Its price-to-sales (P/S) ratio is currently at 4.65, at the top end of its historical averages. Since Karooooo was listed, its average PS ratio was 4.20.

Karooooo’s price-to-book (P/B) ratio is currently at 6.39, which is very close to its total average of 6.52.

Its price-to-earnings (P/E) ratio is currently at 24.9 times, which is lower than its total average of 26.08.

Its highest average P/E ratio was in 2021 when it had an average of 32.9, and its lowest average was in 2023 at 22.44.

Karooooo’s P/E ratio is the most attractive metric of all its valuation ratios. This is mainly due to its cost management strategies, which result in greater profits.

Overall, Karooooo is not significantly over or undervalued based on its historical averages. It presents itself to be fairly valued.

However, in absolute terms, it has a high valuation. This can be explained by its strong revenue and earnings growth.