E Ituran Is Set To Recover

  • The company was buffeted by the pandemic, a dividend cut, a car market growth decline, and negative currency effects but all of these seem to be disappearing.
  • Currencies remain a considerable risk though, with the company mostly operating in Israel and Latin America.
  • The company produces strong cash flow and has resumed dividend payments, the shares are cheap.

Ituran (ITRN) is an Israel-based telematics service provider with markets mostly in Israel and the Americas. They offer asset location, theft recovery service, and several value-added services with Israel and Brazil (their two largest markets and countries with a very high car theft incidence) and other markets in the Americas (including the US).

Source: FinViz

The technology was originally developed to locate military pilots in distress which was later converted to civilian use.

We like the business model as it is mostly a highly scalable platform that is easily expandable with new services and customers, runs on high gross margins, and produces recurring monthly subscription fees.

The company's devices and sensors that go into cars and other assets are produced by contract manufacturers in Israel and China, these produce lower gross margins but these are still pretty good, in the low to mid-20s. 

Growth

The impact of the pandemic was notable:

Data by YCharts

But 2020 was, of course, a singularly bad year and even then the company managed to produce $60M in free cash flow and where others struggled during the pandemic installing the devices in cars, Ituran kept things going by installing them in people's homes, a pretty creative solution. 

The number of subscribers has risen steadily and the company now has 1.77M subscribers:

Source: March 2021 IR presentation

Recurring subscription revenue is more than 70% of revenue. They sell to OEMs (car manufacturers) and the aftermarket and partner with insurance companies.

Source: March 2021 IR presentation

The company uses terrestrial network triangulation and GPRS for their main SVR service as terrestrial triangulation doesn't suffer from some of the disadvantages of other network technologies like GPS and cellular networks.

For instance, their terrestrial network doesn't suffer in dense urban situations, it's difficult to jam, short bursts of data are sufficient for tracking which is also why the network of base stations doesn't have to be dense but it requires the build-out and maintenance of proprietary infrastructure (a network of base stations).

However, the company is increasingly using other network technology (SMART and GPS/GPRS) as GPS, in combination with their own improvements is overcoming most of its disadvantages. So when entering a new market they don't have to build out the infrastructure first, which is important to keep in mind. 

Products

Theft protection comes in two forms, one for cars where insurance companies require it and SAVE, a simpler form where this isn't required and these are systems that make unauthorized use of a car very difficult. Their ICS (Ituran Com Seguro) product is very successful in Brazil

Stolen vehicle recovery or SVR is doing just that, recovering stolen vehicles with the help of devices in cars, a network of base stations, and a 24H manned control center which receives an indication of unauthorized entry, determining whether this is real or a false alarm. In the latter case, law enforcement is notified of the location and in several countries, the company maintains private enforcement units to assist the former. Vehicles can also be remotely immobilized.

User-based insurance where a combined hardware and software solution monitors the driving behavior which is then used by insurance companies to tailor insurance offerings individually. At present this is only offered in Israel (and a 20K pilot in Argentina), but it has good expansion potential especially as the activation can be done remotely. 

Fleet management allows operators of fleets the ability to locate, monitor (speed, distance driven, direction, diagnostics, driver behavior etc.), record, and schedule in order to manage and control their fleet, reducing operating cost, optimizing work hours and appointment scheduling, improving services and operations and the like.

Value-added services consist of locator services (equipment, merchandise), concierge services (24h navigation guidance, phone assistance, traffic reports, directions, etc.), and connected car services.

Connected car provides car service and other info on an app and the company's infotainment system and it provides pre-emptive car maintenance alerts for mechanical failures and operational issues like low tire pressure.

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Disclosure: This article is part of a new “UnderCovered” series of exclusive articles featuring companies with limited coverage. Authors are compensated by TalkMarkets for their ...

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Wall St. Wolf 1 month ago Member's comment

Going to pick up some shares of $ITRN, thanks.

Patrick Avery 1 month ago Member's comment

Who are the competitors to this company?

Shareholders Unite 1 month ago Author's comment

There quite a few in the telematics space, they are mentioned in the 20-F, a few I covered are INSG and MiX Telematics. The market is growing and there Is quite a bit of segmentation in the market (by application, geography, technology, etc.) so it's not hypercompetitive.

Susan Miller 1 month ago Member's comment

Vivian Lewis, don't you cover Israeli companies? What's your take on #Ituran? Worth buying $ITRN?

Dick Kaplan 1 month ago Member's comment

Very impressive. It's hard to find such detailed information about this company.

Shareholders Unite 1 month ago Author's comment

My pleasure Dick, appreciated.

Currency Trader 1 month ago Member's comment

I hadn't heard of this company, but $ITRN sounds worthwhile to me. I think I'll pick up some shares.

Andrew Armstrong 1 month ago Member's comment

$ITRN looks promising.

Shareholders Unite 1 month ago Author's comment

Yes, I was actually surprised how modestly priced the stock is, to be honest. Management is innovative and these applications tend to be quite sticky.