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"Exceptional demand" for Quartix devices as drivers look to push down insurance rates

Published: 08:15 27 Jul 2016 EDT

Steering wheel and driver dashboard
Quartix saw an exceptional demand for its vehicle tracking devices.

In some parts of the country car insurance has gone up 25% in the last year, with the average price in London topping £1,000 a year.

So it’s no wonder drivers are looking to lower their premiums in any way they can.

That’s where AIM-listed Quartix Holdings plc (LON:QTX) comes in.

Quartix supplies tracking systems for vehicles and in the last year has seen its insurance services arm take off.

The group saw an exceptional demand for its telematics vehicle tracking devices, as popularity for its black box-like tracking among insurers and drivers soared.

Discounts for safer drivers

Quartix’s driving tracker plugs into a vehicle’s diagnostic port and measures vehicle data such as acceleration, turns, speed, miles driven and in some cases location, to determine the competency and safety of the driver.

The information is then collected by the provider’s database to help insurance companies to determine tailored rates for drivers. For safer drivers that can mean discounts on policies.

Quartix reported a 47% growth in revenues coming in from the insurance services arm, driving up revenues to £11.6mln, compared to £9.2mln reported last year.

The group now has a fleet of over 79,000 vehicles with the device installed, up 7% on last year, while its customer base increased by 5% to 8,212. Sales in the UK grew by 24% on last year.

International insurance

But it’s not just in the UK where vehicle tracking is taking off. Across the channel revenues were up 26% as the group won subscriptions with French insurers.

A dedicated Chicago sales team is pushing the device to the American market, where the group has seen its subscription base more than double in a year to just over 4,000 vehicles. With a new facility just opened up in the States, chief executive Andy Walters said there is room to expand even further.

But new legislation introduced at the end of last year reduced demand and caused some uncertainty whilst the group ensured its device was compliant.

As of December 2017, US regulators will introduce legislation concerning the monitoring of drivers’ hour of service. The Federal Motor Carrier Safety Administration estimates that around 3.1mln vehicles could be affected.

A new product which complies with the new rules is nearing completion, assured Walters. Shipments will begin early in the second half.

The group expects the legislation to increase market demand for its tracking devices and services once implemented.

Software development

The first half saw significant expenditure on research and development.

The group pumped money into improving its software and has developed a user dashboard which allows the device platform to work with a number of smaller brokers and insurers.

For the second half, the group said its focus now lies on supporting its subscription base and fleet expansion. Subscriptions bring in reliable recurring revenues for the group.

In the last six months the group saw a very strong free cash flow of about £3.1mln, up 29% on last year.

Cash is for shareholders

Back in February, Walters told Proactive that: “Cash is for shareholders not acquisitions” and that still stands.

On Wednesday, the board recommended an interim dividend of 2.2p (2015 2.0p) per share, amounting to £1,040,445 in aggregate.

“In the UK fleet market there are about 1.5mln commercial vehicles and only about 30% of those have tracking installed, so there are still plenty of opportunities for us” explained Walters.

As for the insurance market, the group expected it to remain steady but would not expand too much after the initial surge.

Walters said the main market for the device was among young or first-time drivers who can often expect to pay in excess of £2,000 a year for car insurance.

There are around 250-300,000 young new drivers per year who could potentially benefit from the group’s device in the UK alone.

What the broker says

“Management time has been focused on meeting the exceptional demand for telematics devices and services from the insurance industry but will now oversee a continuation of the fleet expansion,” said analysts at finnCap.

Shares currently stand at 380p, edging closer to the all-time high of 399p seen in March, having floated at 145p in 2014. They are up 64% in the last year.

City broker finnCap forecasts growth potential across the board, with strong margins from Quartix’s fleet arm offsetting a draw-back in insurance sales

For 2016 revenues are expected to come in at £22.6mln, with £24mln expected in 2017, meaning adjusted pre-tax profits of £6.7mln and £7.4mln respectively.

Compare that to the £15mln revenues in 2014, when the group first went public, and there seems to be significant stable growth.

An estimated payout of 10.2p for this year and 13.8p for 2017 equates to a dividend yield of 2.9%, rising to 3.8% - better than the best savings accounts.

finnCap said the latest results left Quartix on track to deliver “impressive” sales and earnings growth.

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