Quartix Technologies PLC (LON: QTX) – Shift from low-margin Insurance business to the core software & telematics products. 

Quartix Technologies PLC (LON: QTX) is an FTSE AIM All-Share listed Company that is the leading supplier of subscription-based vehicle tracking systems, software, and services. Moreover, the Company facilitates fleet customers & insurers to enhance productivity and reduce cost by capturing, analysing, and reporting vehicle & driver data. QTX has installed more than 600,000 systems since 2001.

 (Source: Company presentation)

Recent Trend of Dividend payments: The Company will pay an interim dividend of 1.5 pence per share on 10 September 2021, with an ex-dividend date of 12 August 2021. Moreover, it had paid an FY20 final dividend of 17.7 pence per share on 30 April 2021.

Growth Prospects

• Increased Proportion of Recurring Revenue: The recurring element of subscriptions had represented 88% of group revenue during H1 FY21, while it contributed around 78% during H1 FY20.
• Appointment of New CEO: QTX had appointed Richard Lilwall as Chief Executive Officer after the retirement of the current CEO Richard Lilwall. Moreover, Mr Lilwall is very passionate about the potential in the telematics market, and he will join the Company in early October 2021.
• Increased Investments in Marketing & Sales: QTX had prioritized continuous enhancement of the core software and telematics services. Moreover, the Company had increased the investment in marketing & sales resource for the fleet operations
• Accelerated Growth in Fleet Subscription: QTX had shown an approximately 31% increase in new fleet subscriptions to 25,493 units during H1 FY21. Moreover, it had also witnessed a healthy increase against 2019 pre-pandemic levels too.

Key Risks

• Cyber Crimes: The increasing number of cyber-attacks across several industries had posed serious threats, and the technology industry had tried to combat these attacks.
• Workforce Shortage: The shortage looming for the information security workforce would lead to the other emerging risks in the sector.
• Decline in Top-line and Bottom-line Business: The Company had witnessed a reduction in top-line revenue and bottom-line profitability during H1 FY21.
• Other Principal Risks: The cancellation of obtained contracts, lack of funding availability, supply chain disruption amid the Covid-19 pandemic can impact the growth trajectory.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Quartix Technologies PLC.

Walters (Andrew John) is the most significant shareholder as it holds nearly 10.66 million shares as of 30 June 2021.

H1 FY21 Financial & Operational Highlights (for the six months ended 30 June 2021, as of 28 July 2021)

(Source: Company result)

• The fleet revenue went up by around 7% to £11.61 million during H1 FY21 with robust new fleet subscriptions from France and other European countries.
• The new fleet subscription had shown a healthy growth of around 21% to 12,055 units during H1 FY21, while it was 9,994 units for H1 FY20.
• On the profitability front, the basic earnings per share was 3.70 pence and diluted earnings per share remained 3.66 pence during H1 FY21.
• The Company had generated a free cash flow of around £1.4 million for H1 FY21, while it was £3.2 million for H1 FY20.

Share Price Performance Analysis

 (Source: Refinitiv; Analysis done by Kalkine Group)

On 05 August 2021, at 10:49 AM GMT, QTX’s shares were trading at GBX 497.50, up by around 0.51% from the previous day closing price. Stock 52-week High and Low were GBX 580.00 and GBX 310.00, respectively.

From a technical perspective, QTX is trading above 20-days exponential moving average of GBX 484.50, indicating a upside potential in the stock price.

Over the last one year, QTX’s stock price has delivered a positive return of ~44.74%, and it has outperformed the FTSE AIM All-Share index (benchmark index) with a return of about 38.16% and FTSE All-Share Software & Computer Services index (benchmark sector) with a return of about 9.69%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

QTX had delivered decent H1 FY21 results with strong growth witnessed in the fleet customers. The Company had set strategic priority with an increased focus on fleet telematics operations. Moreover, the Company had estimated insurance revenue to represent just 4% of the total revenue in 2022 due to the continued shift from low margin business to telematics market. Meanwhile, QTX had carried the positive momentum in H2 FY21 as well. The Company aims to generate high levels of recurring revenue and identify growth opportunities for the fleet operations in the UK, USA, France, and the rest of Europe. Overall, the Company would utilize the financial strength to achieve robust business growth for the core fleet operations.

Considering the decent H1 FY21 financial performance, better leverage position as compared to the industry, increased contribution of recurring revenue, robust new fleet subscription growth, consistent dividend payments, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Quartix Technologies PLC at the current price of GBX 497.50 (as on 05 August 2021 at 10:49 AM GMT), with lower-double digit upside potential based on 75.46x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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