Karooooo: High-Quality SaaS At A Reasonable Valuation

Core Viewpoint - Karooooo is a rapidly growing South African telematics company that is increasingly returning capital to shareholders and focusing on its core business, Cartrack, particularly in Asia [1][9] Subscriber Growth - The number of paying subscribers increased from 88,000 customers and 1.526 million subscribers to over 121,000 customers and 1.971 million subscribers as of February 29, 2024 [2] - The company expects to reach between 2.2 million and 2.4 million subscribers by the end of the calendar year 2024, indicating a significant growth trajectory [2][5] - South Africa remains the primary market for subscriber growth, while Asia, the US, and the Middle East are growing at a faster rate from a lower base [2] - Net subscriber additions increased from 191,000 in 2023 to 254,000 in 2024, with management aiming to double the subscriber base in less than four years [2] Financial Performance - In 2024, Karooooo achieved a 20% revenue growth and a 17% increase in subscription revenue, with gross profit and operating profit growing by 18% [4] - The operating profit reached a record 1 billion ZAR, maintaining high operating profit margins at 25% [4] - The company anticipates operating profit to improve to 27% and net income to reach 29.25 ZAR, equating to approximately $1.60 USD in earnings per share for 2025 [5] Valuation - The current price of $28.62 per share implies a P/E ratio of approximately 18, which is considered a fair price for a SaaS company that meets the rule of 40 and is accelerating subscriber additions [6] Capital Return Initiatives - Karooooo announced a share repurchase program to buy back up to 1 million shares, representing 10% of shares outstanding, which could support the share price [7] - The company has a history of paying special dividends, with expectations of declaring a special dividend of at least $1.00 per share in the May-August timeframe, providing a potential 3%+ dividend yield [8] Strategic Partnerships - The company is leveraging partnerships with leading OEMs to develop the connected vehicle ecosystem, with expected contributions to subscriber growth starting in FY '25 [3]