Diamond in the Rough – Pointer Telocation (PNTR)
Headquartered in Israel, Pointer Telocation provides telematics* products and services with operations in Israel, Brazil, Argentina, Mexico, and Southern Africa as well an emerging business in New York City.
*Telematics involves the use of wireless devices to transmit real time data, integrating mobile communications with vehicle monitoring and location technology.
This morning, the company reported its 2Q earnings and is now seeing its stock price gap higher by 10+%:
-EPS of $0.32 vs $0.21 estimate – Beat
-Revenue of $20M vs $18.23M estimate – Beat
-Revenues increased 24% Y/Y
-Revenues from Products (Cellocator) increased 18% Y/Y
-Revenues from Recurring Services (MRM) increased 27% Y/Y
-Total Subscribers increased 24% Y/Y
I assume that this is a name not many people follow, so here is a quick overview of their business coupled with recent commentary:
The company has 2 main segments: Cellocator (36% of Sales) and MRM Service (64% of Sales)
Cellocator – This segment designs, develops, and manufactures telematics hardware and software products used to manage fleets, track assets and recover stolen vehicles. It sells to mobile resource management (MRM) operating and service companies worldwide.
MRM Service – This segment operates a SaaS recurring revenue business model. It’s a scale business that had 239,000 active subscribers at the end of 2Q17. The infrastructure, hosted with Microsoft’s (MSFT) Azure Cloud Solutions, is in place to handle significantly high sales levels.
Customers
Per a June Investor Presentation, here is a snapshot of some of the companies Pointer does business with:
In addition, over the past year, Pointer has made the following significant purchases and/or agreements:
• In August 2016, Pointer acquired Cielo Telecom in Brazil for $6.5M. Cielo added about 16,000 subscribers and expanded the company’s presence in the southern part of Brazil and the shift to Pointer’s SaaS model is underway. It is being integrated and is helping expand subscriber growth.
• FEMSA, the world’s largest Coca-Cola bottler, was added as a new customer in Mexico last year and the rollout is now complete. FEMSA chose Pointer for its driver safety tools and applications to lower fuel costs, internal costs and improve its distribution process.
• Pointer driver assistance programming is combining with Mobileye (MBLY) vision technology for American Transit Insurance Company (ATIC) to track and rank driver behavior on about 4,500 New York City taxicabs in return for lower insurance costs due to a reduction in accidents. In addition, discussions are underway with other fleets in Manhattan as well as other locations.
Roth Capital, on July 7th, said, “Although we expect Pointer to close another acquisition this year with more to follow in 2018, additional acquisitions are not built into our estimates.”
To reiterate, CEO David Mahlab issued the following statement following the release of the company’s Q2 earnings this morning: “We have made great progress on two strategically important deployments. We have successfully completed most of the installations with Femsa, the Coca-Cola bottling company in Mexico, and we have fully deployed our driving behavior solution integrated with Mobileye devices in a 5,000-car fleet in New York City. In addition, we recently announced a new long-term product supply agreement with a leading US-based telematics provider. This contract is the first substantial win for our new Nano CelloTrack technology. We believe this is the first of many other opportunities that we expect to capitalize on in the coming quarters.”
Analyst Coverage
As you can probably guess, this is a name that doesn’t have a lot of sell-side analyst coverage. The most recent ratings include:
Roth Capital, who On July 7th, initiated coverage with a Buy rating and $16 price target saying, “In our opinion, the business model is one of steady growth, large enough to be consistently profitable with recurring revenue from mobile resource management (MRM) service accounting for 65% of revenue on a ttm basis.”
Rodman & Renshaw, who On May 19th, reiterated its Buy rating but boosted its price target from $10 to $15.
