Quartix Technologies PLC

Quartix Technologies PLC (LON: QTX) is an FTSE AIM All-Share Index company that provides vehicle telematics and driver analytics services.

Investment Rationale for Valuation – Speculative Buy at GBX 360.00

• Trading Update: The Group has reported decent growth in new installations during the month of January and February 2022 and the growth has continued into March. Total units in Q1FY22 are expected to rise to 25%, compared with the prior corresponding period.
• Uptick in ARR: The company also reported an uptick in the annualised recurring revenue in Q1FY22, reflecting an increase of around £0.7 million during the quarter when compared to the prior corresponding period.
• Increase in Inventory: The Company has shown a rise in increase in inventory holdings during FY21 as it plans to mitigate the global microchip supply issues.
• Technical Indicator: The price of the stock is trading near the lower Bollinger band with a very low 14-day RSI level of ~10.40, therefore indicating the possibility of near-term reversal.

Key Risks

• Weak New Car Registrations: The company had faced the key risk of disruption in the supply chain of microchips, which can impact business continuation. With reference to the data from Society of Motor Manufacturers and Traders (SMMT), the UK new car sales witnessed a weakest March since 1998.
• Technology Risk: The Group is prone to technology risks that arises from possible substitutes for the current Quartix product.
• Supply Chain Risk: The company is faced with the key risk of disruption in the supply chain of microchips, which can impact business continuation.

Financial Highlights (for the year ended 31 December 2021, as of 28 February 2022)

(Source: Company Website)

• Rise in New Units: The Group reported growth in Fleet subscriptions (new units) by 18.3% to 50,765 in FY21, compared to 42,898 in FY20.
• Uptick in Fleet Revenue: Fleet revenue increased by 7.7% to £23.75 million in FY21, compared to FY20.

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

Conclusion

The management seems to be positive after the trading update of Q1FY22 and will further continue to invest in new sales initiatives and enhanced features in its product offering.  

The stock made a 52-week high and low of GBX 525.00 and GBX 330.00, respectively.

Based on the decent trading update, increase in fleet revenue, investment in sales initiatives and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Quartix Technologies PLC at the closing market price of GBX 360.00 (as of 07 April 2022) with lower double-digit upside potential based on 44.11x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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