The potential superstock of the week is MiX Telematics Limited (MIXT) . MIXT is a global provider of fleet and mobile asset management solut...

Weekly Superstock Scan 19 Jun - 23 Jun 2017: MiX Telematics

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The potential superstock of the week is MiX Telematics Limited (MIXT). MIXT is a global provider of fleet and mobile asset management solutions. Using the Software-as-a-Service (SaaS) delivery model, MiX Telematics delivers its solutions to customers in more than 120 countries, across 6 continents. Over 622,000 mobile assets – from trucks and buses, to vans, cars, motorbikes and trailers – are actively managed by MiX Telematics. 


 MIXT's operating segments are based on the geographical location of its regional sales office and the central service organization. The segments are:
  • Africa
  • Europe
  • Americas
  • Middle East and Australasia
  • Brazil
  • Central Service Organization
The Africa segment is MIXT's largest source of revenue and income. In FY2016, Africa contributes about 55% of MIXT's revenue.

Technical



The setup of MIXT is not a long flat base and I will describe it more as a box setup. Since September last year, MIXT has been trading in a $5.70 to $7.90 box. It was only last week when price finally broke out of  the box to close at $8.04. The volume of the week was around 400 thousand shares, only slightly more than the average trading volume.

The $8 has served as resistance for the stock since Jun 2015. It remains to see if it will serve as a support now that price has closed above it. There is no earning release last week and the only event related to the company was a presentation at William Blair 37th Annual Growth Stock Conference.

Fundamental



Including the current quarter, MIXT reported 3 consecutive quarters of year on year EPS growth. This is supported by rising revenue and improving margins. 

Electronic Logging Devices

The U.S. Department of Transportation’s Federal Motor Carrier Safety Administration (FMCSA) announced in December the adoption of a Final Rule that will improve roadway safety by employing technology to strengthen commercial truck and bus drivers’ compliance with hours-of-service regulations that prevent fatigue.

Under the rule, commercial truck and bus drivers who currently use paper log books to maintain hours-of-service records are required to adopt electronic logging devices (ELD) within two years. This provide a great opportunity for MIXT to expand in the USA as there are more than 3 million trucks that are subjected to the ELD mandate.

MIXT has taken the US market very seriously as they have relocated their COO to the US to expand the market. The CEO has also expressed his wish that investors look at MIXT as "an American company with great local exposure, rather than a South African company with great global exposure."

Bundling Strategy

MIXT has been aggressively promoting bundled solutions in comparison to their standalone solutions. Bundled deals are more accretive to MIXT as the expected lifetime cash contribution from a typical bundled premium fleet customer is almost $1,000 higher than compared to an unbundled deal. This will also help to enhance MIXT's margin as it reduces the contribution from hardware revenue which typically has lower margins.

The strategy has been successful as more than 80% of new subscribers opted for bundled deals. The percentage of bundled premium subscriber has also increased to 20%, up from 5% three years ago.

Matrices
- High P/E - With a trailing twelve month EPS of $0.33, at the current price of $8.04, it is trading at a high P/E of 24.4 times. 
- Low Float and low volume - MIXT has a reasonably low float of 16.6 million shares. However, the average volume is very low at around 60 thousand shares, therefore the float is about 280 times its average trading volume.

Risk Factors/ Things I do not like


  • Limited upside - Due to its high valuation, I have doubts over the potential of its upside at the current price. Considering that 1Q2016 was a weak quarter and TTM should increase quite a bit, causing the P/E ratio to drop. However, it should still be close to 20 times earnings at current price.
  • Low breakout volume - For such an important resistant level of $8, the volume accompany the break was a bit too mild. This increases the chance of a false breakout.



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