Customer Acquisition And Cost Reduction Will Strengthen Market Position

Key Takeaways

• Strategic focus on key markets and investment in sales aims to drive recurring revenue and improve operational efficiency without increasing customer attrition.
  
• Cost-reduction measures and market expansion in underutilized regions are poised to enhance competitive positioning and boost both margins and market share.
  
• Slow ARR growth, high operating costs, and market underperformance, coupled with costly upgrades, pose risks to Quartix's revenue, margins, and profitability.

Catalysts

Engages in the design, development, marketing, and delivery of vehicle telematics services in the United Kingdom, France, the United States, and other European Territories.

• The re-establishment of customer acquisition focus and growth in key markets such as the UK and USA is expected to drive an increase in recurring revenues, positively impacting future revenue growth.
  
• The strategic price indexation to counteract increased input costs is anticipated to support net margins without affecting customer attrition, which could enhance earnings stability.
  
• A significant reduction in overheads, alongside increased investment in sales and marketing, positions Quartix for improved operational efficiency and net margins.
  
• The redesigned and cost-reduced telematics hardware, along with planned software updates, aims to bolster performance while reducing costs, likely leading to margin improvements and stronger competitiveness in the market.
  
• Expansion in existing target markets with a high potential for ARR growth, particularly in underexploited regions like Italy, Spain, and Germany, is expected to significantly drive revenue and market share.

Quartix Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Quartix Technologies's revenue will grow by 7.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 14.7% today to 14.1% in 3 years time.
• Analysts expect earnings to reach £5.7 million (and earnings per share of £0.12) by about May 2028, up from £4.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 33.0x on those 2028 earnings, up from 25.9x today. This future PE is lower than the current PE for the GB Software industry at 33.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.1%, as per the Simply Wall St company report.

Quartix Technologies Future Earnings Per Share Growth

Risks

• The slowdown in customer acquisition in 2022 and 2023 affected annualized recurring revenue (ARR) growth, which could indicate challenges in driving revenue growth consistently. This suggests potential volatility in future revenues.
  
• Quartix faced increased operating costs and had to implement price indexation for subscriptions to manage input cost pressures. If price hikes lead to customer dissatisfaction, it could impact revenue retention and net margins.
  
• The liquidation of the Konetik Deutschland acquisition due to its costs and inability to generate revenues highlights the risk of poor management decisions negatively impacting net margins and earnings.
  
• Despite expanding their footprint in multiple countries, some markets like Italy, Spain, and Germany remain small in terms of ARR contribution, posing a risk to overall revenue growth and suggesting potential underperformance in some regions.
  
• The need for substantial upgrades, such as the 4G upgrade in France, incurs significant costs that could affect free cash flow and profitability until these investments yield desired efficiencies and returns.

Valuation

• The analysts have a consensus price target of £3.1 for Quartix Technologies based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £40.4 million, earnings will come to £5.7 million, and it would be trading on a PE ratio of 33.0x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of £2.55, the analyst price target of £3.1 is 17.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.