Frank Voisin is the author of the popular value focused website Frankly Speaking, found at Frankvoisin.com
A reader emailed me his investment thesis for Ituran (NASDAQ:ITRN). It is quite interesting, so (with his permission) I am sharing it here. If you have an investment thesis that you would like featured on this site, send it to me here.
Frank’s Disclosure: No Position. Author’s disclosure below.
Ituran: Securing Vehicles and Profits, with a Considerable Free Growth Option
Ituran (ITRN) is a leading company in its field, providing tracking and advanced protection services for vehicles and drivers. Ituran specializes in theft prevention and vehicle location, and the provision of information services, navigation and assistance while on the road. Ituran’s system is powered by a unique advanced technology developed originally to locate pilots in difficulty and later adapted for civilian use.
Since its founding in 1994, Ituran has developed a strong reputation, and is in fact the leading company globally providing tracking, protection and communication services to vehicles and drivers. Ituran has more than 628,000 customers that it faithfully serves from its service bases in Israel, Argentina, Brazil and the United States. To date, Ituran has successfully prevented or resolved the theft of more than 16,150 vehicles with a total value of more than $1 Billion. Historically, Ituran’s most important target market has been insurance companies seeking to lower costs and protect their customers.
A Quick Summary thanks to Gurufocus (click for full):
How Ituran Helps:
Press release July 10, 2012
“Refrigerated Truck Stolen and Quickly Recovered Thanks to Ituran’s Fleet Management & Recovery System
A sophisticated “chop-shop” was shut down and four wanted criminals were arrested and charged with seven felonies thanks to Ituran’s Manageit Fleet Management and Recovery System”
The first of four markets in which Ituran operates, Argentina, accounts for 124,000 or ~20% of the total. In Argentina, Ituran is one of the leading companies, doubling the number of vehicles since 2005. The US, Ituran’s smallest market in terms of units, has 25,000 accounts or ~ 4%. As a result of the price competition and market saturation, Ituran has not placed much emphasis on the US, though it is growing its presence there.
Ituran’s home market of Israel, accounts for nearly 50% of its units at 256,000. Its strong market position cannot be understated. As per their 10-K:
Under Israeli law, we are considered a “monopoly” and therefore subject to certain restrictions that may negatively impact our ability to grow our business in Israel.
We have been declared a monopoly under the Israeli Restrictive Trade Practices Law, 1988, in the market for the provision of systems for the location of vehicles. Under Israeli law, a monopoly is prohibited from taking certain actions, such as predatory pricing and the provision of loyalty discounts, which prohibitions do not apply to other companies. The Israeli antitrust authority may further declare that we have abused our position in the market. Any such declaration in any suit in which it is claimed that we engage in anti-competitive conduct would serve as prima facie evidence that we are a monopoly or that we have engaged in anti-competitive behavior. Furthermore, we may be ordered to take or refrain from taking certain actions, such as set maximum prices, in order to protect against unfair competition. Restraints on our operations as a result of being considered a “monopoly” in Israel could adversely affect our ability to grow our business in Israel.
Though there is some obvious considerations/downside to being a monopoly, they are a de facto MONOPOLY in their largest market.
Ituran has been in Brazil for nearly 12 years and is a leader in that market. Brazil accounts for 219,000 or nearly 25% of the total number of vehicles. The reason we chose to list Brazil last is it’s a unique case to value the company, and is likely a source of astronomical future growth.
Ituran’s press release:
AZOUR, Israel, April 9, 2012 /PRNewswire/ –
Ituran Location and Control Ltd. (NASDAQ: ITRN, TASE: ITRN), announced that today Ituran entered into agreement withGeneral Motors Brazil (“GMB”) through a company controlled by Ituran (51%).
According to the agreement, GMB will offer its customers immobilization, location and Telematics services for the Chevrolet range of vehicles it sells in Brazil through Ituran’s aforementioned subsidiary. The sale and the installation of the anti-theft device will not be carried out by Ituran.
New regulations in Brazil, i.e. Supplementary Law CONTRAN no. 245, provide that as of August 2012, new vehicles in Brazil shall be obliged to incorporate an anti-theft device. Since the Regulation has not yet entered into force, the Company cannot estimate at this time the effect of the agreement with GMB on its profitability and sales revenues.
Ituran estimates that the agreement with GMB is of significant importance, since once the Regulation enters into effect, it may be of substantial financial scope.
Eyal Sheratzki, CEO of Ituran commented, “This agreement with GM is an important milestone for our business in Brazil. We see significant future upside potential from this agreement once the 245 regulation becomes effective. We look forward to working with this leading global car manufacturer and we hope to build a long-term, successful and fruitful relationship with GM.”
So, CONTRAN LAW no. 245, states that all new vehicles must incorporate an anti-theft device. This includes not only cars and trucks, but all vehicles such as Class 8 tractors. In this first announced OEM partnership for Ituran in Brazil, Chevrolet and Ituran have agreed to a deal, for which Ituran will provide an anti-theft system in every vehicle Chevy produces in Brazil. While individuals have the option to activate the service component (if not activated, no service fees are paid), they must have the system pre-installed by the manufacturer (even if the vehicle is produced outside the country and brought in). This is a very interesting development moving forward.
|Top 5 Markets for Chevrolet in 2011(new vehicles produced)|
In 2011, Chevrolet produced 632,201 cars in Brazil, or a little over 100% of the total number of vehicles currently monitored by Ituran worldwide (628,000). In total, Brazil sold 3.5M cars in 2011. As one of the leading brands in Brazil, Ituran is in an incredible position to make an enormous leap in service sales in the months and years ahead.
The actual sales of the devices will be handled by a separate partnership between Chevy and the telematics manufacturing company (spun off from Ituran in 2007). This will likely serve as a sweetener to Chevy. Though profits are marginal per physical unit, Chevy has high volume as a unit must be legally installed in every vehicle; essentially providing a tidy profit for no additional work (installation will be carried out by a third party). Ituran will not participate in this aspect of the deal, but it’s a net positive as their margins will