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Quartix – “pleased with the progress we have made so far in 2020”… but value?...

By Steve Moore | Thursday 22 October 2020

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Vehicle tracking systems company Quartix (QTX) has updated including “we are pleased with the progress we have made so far in 2020, despite the impact of COVID-19 on our clients and markets. Our subscription base grew in each of our markets and now stands at more than 167,000 vehicles with recurring revenues of just under £22m” – and the shares have currently responded up to 340p…

The noted progress sees it “expects revenue and free cash flow for the year to 31 December 2020 to be in line with current consensus market forecasts… Adjusted EBITDA is expected to be approximately 15% ahead of current consensus market forecasts”. Helpfully, those forecasts are provided; “revenue: £25.8m; adjusted EBITDA £6.9m; free cash flow: £5.2m”.

However, revenue is vanity, adjusted EBITDA manipulated bullshit earnings – and was £7.1 million last year – and free cash flow can short-term be unsustainably manipulated. At 30th June, cash was +£3.2 million over the six months to £10 million though total current assets also +£3.2 million to £14.8 million and liabilities £0.2 million higher to £9 million.

With it also stated that the company now “intends investing further during the remainder of 2020 and 2021 in sales, marketing and technological development”, it will be interesting to see how the tangible balance sheet position evolves – and all the above is with a now above £160 million market capitalisation.

That looks expensive for the metrics noted – and I continue to question the valuation, as previously. Sell / avoid.

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