2 min read

$ITRN

Ituran Location and Control Ltd

  • What the company does: Israeli company founded in 1994 focused on telematic services and products that services USA and majority os South America. Largest player globally in this market.
    • Services: Location services company with uses such as stolen vehicle recovery, fleet mgmt, and protection for valuable items. They also provide navigation assistance, information about nearby stops, etcs. 70% of revenue is recurring from subsriptions. Sell to OEM, insurance companies, fleet managers, etc.
    • Products: Radio receivers, navigation tracking devices, and backend software products. Example: Installations in police cars to help a central station track locations / coverage.

Financials

  • MC 729M, EC 660M. Cash and short term 77M. No debt.
  • Revenue trend is 5-10% annual growth long term.
  • Net income trend is significantly higher growth. ~10% conservatively
  • OpCF CAGR 3.5% over last 6 years. Probably a bit higher, due to inventory changes. But brings growth expectations down to the 5% end. ~74M annually.
  • FCF all over the place due to debt paybacks, buybacks, dividend increase. Most recently ~57M, but working capital changes not consistent. Rec use OCF as more accurate measure of growth.
  • Summary: Growth estimate 5%.

Ratios:

  • EV/OCF best ratio for accurate picture at 8.8x.
  • Fair value for 5% growth is probably closer to 12x for a good business. Implied 36% upside at this trajectory.
  • ROC (Greenblatt) 91%, cost of capital 8.24%, earnings yield (Greenblatt) 11.24%. Passes Greenblatt screening, due to high ROIC.
  • Shares outstanding reduced by 10% in last 5 years – doesnt seem to be priority – no red flags w dilution or SBC.
  • Dividend yield: 5.47%

Management

  • Significant family ownership / management from the Sheratzky family. Ownership not disclosed. Some sites have inside ownership around 20%.
  • Active traders own 0.2%, meaning price action controlled by passive flows.

Company IR:

  • Solid record of steady growth. Planning to increase India market share through Daimler trucks (OEM). Working w Porsche racing.
  • Hidden value: Seed investor in a SaaS company with Salesforce, CocaCola, and others called Bringg (delivery platform) currently valued at 1 billion with 16% ownership that is recorded at no value on their balance sheet. 160M value. This would change the EV/ OCF ratio to around 6.7x, representing ~80% upside.
  • Other notes:
    • Partnerships w GM in Brazil, Nissan in Mexico and Chile, and Daimler in Indian.
      • Consider political risk of GM leaving Brazil? Unlikely.
      • Breaking into motorcycle market could be huge; thought to be target of theft w location services predicted to be on 11/770M sold currently.

Thesis / Probabilities / Magnitude:

  • Low risk, slightly boring, company that has low growth but is still undervalued 30-80% depending on valuation given to the Bringg SaaS seed funding. 5% dividend – paid to wait. Great multi decade track record with family ownership / mgmt. Goes in the safe pile.
  • Price is undervalued at 5% growth. Higher growth would provide significant upside. i.e. built in low expectations.
  • Purchase. 2 units.
  • Hold >1 year for tax purposes, sell target $55, but would be happy to collect 5% dividend while waiting on re-rate. No real immediate catalysts other than subscriber growth, new markets, and fundamentals.

Paul Weaver

Charlotte, NC