Ituran Location and Control (NASDAQ: ITRN) presents a compelling investment proposition. In fact, with a forward-looking dividend yield of 6%, this innovative technology company, which averages roughly 57,000 shares traded daily, may present a value disconnect too wide to ignore. That's not an overly aggressive assessment, either. Considering this company posted record across-the-board financial metrics, including a 9% revenue increase in year-over-year to $320 million, net income of $48 million, an increase of 30% year-over-year, and a 10% increase in EBITDA to $87 million, ITRN's market cap of $530 million, while impressive by most listing standards, may actually fall short of an appropriate fair value.
An analyst at Barclay's covering ITRN stock makes that case, modeling a 12-month price target for ITRN shares to reach $35, over 30% higher than its current price. That expectation is bullish but not overly so. In addition to its record revenues, the company also generated $77 million in FY2023 operating cash flow as it continues to earn deals from global companies interested in its revolutionary telematics and connected car ecosystem. The interest is warranted. While some of ITRN's competitors do one of two things well, Ituran does many by leveraging strength from a full spectrum of innovative software solutions, in-vehicle sensors, and unique services and system functionality that do more than address challenges; they overcome them.
That distinction can do more than drive revenues higher from already record levels; it also supports the evidence-based case that the path of least resistance for ITRN shares is currently paved higher.
Ituran is Ushering in the Shift in Mobility Technology
The bullish expectation is justified, especially as Ituran continues strengthening its leadership position in the emerging mobility technology field by providing value-added location-based services, particularly its full suite of services for the modern connected car. While under the radar of investors, that's not the case from a client-and-use perspective.
Served by its 2,800 employees from offices worldwide, Ituran is the largest OEM telematics provider in Latin America, with its products and applications used by customers in over 20 countries. And a lot of them. By the end of 2023, subscribers wanting Ituran products and services reached almost 2.3 million subscribers increasing by 186,000 during the year and meeting growth guidance despite the challenging economic and geopolitical market landscapes.
In addition to scoring record operating performances, Ituran ended the year financially solid, with year-end net cash and marketable securities of $53 million. Here's the better news from those investors liking to get "paid to wait" for growth. In Q4, Ituran added to its dividend distribution accounts and bought back over $6.6 million in shares, representing a 6% passive income yield and a value driver from a forward-looking valuation perspective, respectively. The latter is significant, considering that the company only has about 20 million shares outstanding on a fully diluted basis.
Operating Momentum After an Impressive Q4/2023
Attracting investors and supporting the bullish analyst model is that year-end results were strengthened by an impressive Q4. For the period, net subscriber growth, meaning recurring revenue stream providers, increased by 42,000 when combining the new aftermarket subscribers of 38,000 with the net increase in OEM subscribers of 4,000. Revenues increased by 4% to $78 million, leading to net income of $12 million, 26% higher than a year ago. The performance prompted the Board to increase the dividend policy by 60% to $8 million for the quarter, a run rate of $32 million per year, based on the growing profitability and strong operating cash flow.
It also led to optimistic guidance about expectations in 2024. Management said it expects to add approximately 35,000 to 40,000 net new subscribers each quarter during 2024, contributing to EBITDA projections between $90-95 million. In 2025, EBITDA is targeted to surpass $100 million. Management did note that these targets are based on current exchange rates and assume that Israel's current global macroeconomic situation and political situation do not significantly change. Still, if Mid-East tensions ease, the potential to beat is undoubtedly in play, noting the company's business resilience during challenging times.
Keep in mind that hardware installations and, therefore, product revenues were paused for at least several weeks following the outbreak of war in Israel on October 7. That caused some declines in a quarterly comparison. However, year-over-year, Ituran accomplished what it and investors want and appreciate- growth. Better still, despite supply-chain issues, gross margins stayed impressive, with subscription revenues at around 58%, and the gross margin on products at 22%. That facilitated Q4 operating income to increase by 8% to $16.5 million compared to $15.3 million in the fourth quarter of last year.
Value Drivers are Active in 2024
From an investor perspective, financial results, interim project updates, and 2024 guidance have guided expectations for the Ituran growth spurt to continue. And the best news from that same standpoint is that the company shares the wealth earned. In addition to the increased dividend, the company will continue its previously announced $25 million share buy-back program, which increased to $35 million, last February. With roughly $6.7 million remaining under that authorization, it's more than support at the bid; it's a value driver that can steepen the growth curve trajectory when new milestones are reached.
And there could be many contributing factors. During its recent earnings conference call, ITRN noted that value drivers accrue from different segments, including those created by insurance companies and car owners, especially in Israel, who are looking for effective security systems to protect assets. Because Ituran solutions are considered best-in-class in many respects, it can leverage that distinction and add to already appreciating levels of subscriber growth.
In other countries, Ituran is focused on monetizing market opportunities on the B2B side, working with financial institutions to offer asset protection and security solutions when they provide loans to new car buyers. In Latin America, where there has been an increase in car theft and damage from violence, the company is focused on penetrating those markets more quickly this year to exploit that revenue-generating market opportunity and add traction to its goal of surpassing $100 million in 2025 EBIDTA. That goal is within reach.
Remember, the subscriber base is growing at 9%. And with upsells for its products more the norm than the exception, tracking higher to meet that projection is more than just an ambitious target; it's in the company's crosshairs. Coupled with financial efficiencies, a management team committed to ensuring revenues fall faster to its bottom line, and increasing global demand for the kinds of security solutions Ituran provides, this dividend-bearing stock looks very attractive at current levels, even more so with a 6% yield, which could also move higher if guidance is met. In other words, investors could earn while they earn, which may be the ultimate win-win investment proposition.
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