Shares for the future: here’s how I rank this simple AIM stock

Vehicle tracking firm Quartix Technologies (LSE:QTX) may have turned a corner in the year to December.

I met the company’s founder, Andy Walters, after the AGM earlier this week to find out more about a wayward couple of years that prompted him to return to the business in 2023 and 2024, and the steps he is taking to get it back on track.

He retired in 2021. 

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Scoring Quartix: back in the driving seat

Revenue grew 8%, and after-tax adjusted operating profit grew 25% in 2024, albeit compared to one of the worst years in the company’s recent history.

The Past (dependable) [2.5]

• Profitable growth: Profit is lower than it was in 2018 [0.5]
• Strong finances: Net cash [1]
• Through thick and thin: Lowest RoC: 112% (2023) [1]

My table focuses on the last three years because the business was changing shape before 2022 as it wound down sales of tracking devices to insurers. By 2022, the division was so small, Quartix stopped reporting its performance.

The company is now focused on its fleet business, which has been earning recurring revenues from commercial van operators since it was founded in 2001.

To grow this business, Quartix has increased investment in sales and marketing to acquire new customers overseas. It first targeted France in 2010 and has an established business there. More recently, it has entered other European markets and the US.

The cost of international expansion has been joined over the last three years by inflation in component and staff costs, and a decision to invest in a new product that went nowhere.

The diworsification was Quartix EVolve, a tool designed to help fleet operators decide which electric vehicles to buy based on their tracking data. Adding to costs in 2023, Quartix acquired Konetik, the company that wrote the EVolve software, to prevent it going into liquidation.

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Soon after the acquisition, Andy Walters returned. He discontinued EVolve, liquidated Konetik, refocused on tracking devices, reduced the size and cost of the board, and for the first time increased prices for existing customers.

This elevated profit in 2024, but despite revenue growth, adjusted profit is still 23% below its peak in 2018.

Cash conversion fell to a sub-par 61% due to the replacement of redundant 2G trackers with 4G units at no cost to the customer. The older units are obsolete due to the retirement of 2G networks in France and the US.

A 12% increase in annualised recurring revenue (ARR) in 2024 bodes well for 2025, when Quartix anticipates low double-digit revenue growth.

It will be reporting an update for the first quarter of 2025 on Monday.

The Present (distinctive) [2.5]

• Discernible business: Reliable tracking for small fleets [1]
• With experienced people: Founder on board, no succession plan [0.5]
• That creates value for customers: Low cost, easy buy, install and use [1]

Quartix supplies a vehicle tracking service powered by small inexpensive devices secured under the bonnet of a van or on its dashboard.

The Printed Circuit Boards are made in China and assembled into tracking devices in the UK. They are typically installed in fleets belonging to trades such as building firms, landscapers and electricians.

The devices relay the vehicle’s position to Quartix’s cloud-based software via mobile networks so owners can monitor fleets in real time on a computer or mobile app. This helps them prevent moonlighting, route drivers to jobs, and ensure vehicles are driven safely and economically.

Almost all Quartix’s income is recurring revenue from data subscriptions sold directly to small businesses via price comparison sites, by telephone, through distributors and, in its larger markets, some field sales people.

More than most companies, Quartix’s development has been guided by one person: Andy Walters. His mantra is to keep things simple.

Simplicity comes in many forms: a generic device that is so easy to install nearly 50% of customers do it themselves, straightforward contracts with no upfront costs that typically require only a one-year commitment, easily configurable software, and centralised support functions.

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Mr Walters believes the company he created is so simple, it should be able to run itself. He appears to be trying to make himself almost redundant.

His return in late 2023 triggered a boardroom clear out. The chief executive, the chief financial officer, and all three non-executives, had gone by March 2024.

Today, a board of three runs the company, two new non-executive directors and the executive chair, who is only committed to eight days work a month.

I wonder about the sustainability of this. Quartix is run by an operating board of trusted long-serving employees, which gives me confidence, but recent events show that the executive chair serves a function: to keep the company on the straight and narrow.

Three things are clear. Mr Walters wants to reduce his workload below his eight-day commitment, although he is currently working more. He has no plans to beef up the PLC board. And he has no plans to step down from the board again, while he remains a major shareholder.

The Future (directed) [2.5]

• Addressing challenges: Cost increases, attrition, UK 2G sunset [0.5]
• With coherent actions: Simplification, expansion, price increases [1]
• That reward all stakeholders fairly: Dedicated management, satisfied customers [1]

Quartix believes it can create large installed bases in Germany, Italy, Spain and the US, and continue to grow the substantial installed bases it already has in the UK and France. Except for the US, revenue growth rates in 2024 were impressive.

In the US, Quartix has reversed previous management’s decision to focus its US expansion on field sales in Texas. This policy contrasted strongly with Quartix’s nationwide and predominantly direct sales model in other countries, and sales contracted. It is early days, but the territory returned to modest revenue growth in 2024.

The biggest challenge facing the business is competition, so much so that until 2024 Quartix had never increased the subscription cost for existing subscribers for fear of losing them.

Quartix says post-pandemic inflation changed that taboo. We have grown used to price increases for subscription products. It does not believe it has lost subscribers due to its first price increase last year.

One year is not much to go on, but Quartix may now have two levers to increase revenue: growing the installed base and annual price increases levied on that installed base. Growth in the installed base depends on Quartix being able to sell new subscriptions faster than customers switch to rivals.

To measure how successfully it manages these levers, Quartix has introduced a new performance indicator: Net Revenue Retention.

At the end of 2024, Quartix had retained 95.7% of the ARR from its subscription base at the beginning of the year. It wants to achieve 100% Net Revenue Retention. This would mean revenue is maintained despite the inevitable loss of subscriptions, even if the company added no new ones.

The company is more circumspect about attrition. The price rise in 2024 concealed an increase in attrition. By my calculation fleet gross attrition, the number the company has substituted with Net Revenue Retention, has increased from 13.3% to 14.5% in 2024.

At one time, Quartix’s attrition rate was as low as 10%, suggesting a typical unit saw 10 years of service. If 2024 is anything to go by, it is more like seven years, today.

In some ways, the industry is a victim of its own success. By making the devices so easy to buy and install, Quartix and its rivals have made it easy for customers to swap.

This means the pressure on price when Quartix is acquiring new customers is as intense, if not more so, than ever. To improve profitability, the company must reduce costs. Except during the brief interregnum in Andy Walters’ leadership, this has always been Quartix’s strong suit.

In addition to refocusing the business in 2024, the company re-engineered the device’s hardware and firmware, which it says has resulted in savings of £8 per unit (a reduction of 20% or so).

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These new units will go into production once the existing stock is exhausted this summer, and they will reduce the cost of the upgrade programme in France too.

Quartix is also reviewing its sales channels. Price comparison sites are the most convenient channel, especially in new markets, but telesales is the most profitable and reduces Quartix’s dependence on third parties for leads.

For some time, Quartix has been supplying new customers with 4G devices. Even so, it has a large 2G installed base in the UK that is slowly declining due to attrition, service upgrades and vehicle swaps.

UK network providers have agreed to shut down their networks by 2033, although Quartix’s provider plans to consult customers about a 2030 deadline.

Quartix does not foresee a material upgrade programme, however the French sunsetted their networks earlier than expected. We should not rule out the possibility that it will have to replace substantial numbers of units in the UK, and might choose to do it at its own cost, at some point.

Last year, I misinterpreted a statistic that encouraged me to lop half a point from Quartix’s score. The company reported 31% voluntary employee turnover, which is extraordinarily high. In fact, this statistic was the proportion of leavers that left voluntarily, not the proportion of the total number of employees that left voluntarily, as I thought.

This year’s number, 18%, is the more common version of the statistic. I cannot deny that I would be reassured if it were lower but also recognise that many of Quartix’s employees work in a call centre, and this may not be a permanent career choice for them.

I believe Quartix is good for stakeholders. Apart from the shareholding and singular purpose of its executive chair, which aligns him with shareholders, I have inferred this from its operating board of eight, its most senior employees have combined service of nearly 90 years, and its high Trustpilot score of 4.8.

The price (discounted?) [-0.4]

• No. A share price of 197p values the enterprise at about £93 million, 20 times normalised profit.

A score of 7.1 implies Quartix is probably a good long-term investment.

It is ranked 25 out of 40 shares in my Decision Engine.

29 Shares for the future

Here is the ranked list of Decision Engine shares. I review the scores at least once a year, soon after each company has published its annual report. The price scores are calculated using the share price prior to publication.

Generally, I consider shares that score 7 or more out of 10 to be good value. Shares that score 5 or 6 out of 10 are probably fairly priced.

Bunzl (LSE:BNZL) has published its annual report and is due to be re-scored.

Scores and stats: Richard Beddard. Data: ShareScope and annual reports
Click on a share's name to see a breakdown of the score (scores may have changed due to movements in share price)
Shares marked with an asterisk (*) have been re-scored, click the asterisk to find out why.

Richard Beddard is a freelance contributor and not a direct employee of interactive investor.  

Richard owns Quartix and many shares in the Decision Engine. He weights his portfolio so it owns bigger holdings in the higher-scoring shares.

For more on the Decision Engine, please see Richard’s explainer.

Contact Richard Beddard by email: richard@beddard.net or on Twitter: @RichardBeddard