Ituran Location and Control LTD, For Your Smallcap Dividend Portfolio

Ituran Location and Control LTD Is Supported By Secular Trends

Ituran Location and Control NASDAQ: ITRN is a small Israeli-based company providing digital services to vehicle owners. The company's clients range from individuals to OEM manufacturers, its products and services include location and antitheft controls, IoT connectivity, maps, and information on roadside services. The company's revenue is yet to regain its pre-COVID levels but the company is well on track to not only meet but to exceed those levels. While business has been a little slow to bounce back, the company has expanded its customer base in both the OEM and aftermarket segments setting it up for leverage on both the top and bottom lines.

A Good Quarter For Ituran Location And Control

Ituran Location And Control had a good second quarter despite falling short of its two-year comparison. The revenue of $67.50 million is flat sequentially but up 26.6% from last year and beat the consensus by 2.5%. The revenue is down -5.2% on a 2-year basis but we see the company regaining pre-pandemic levels within the next quarter. On a segment basis, the company reports that 70% of the revenue is from subscriptions which is a very significant figure as this Revenue should be sticky.  More importantly, product revenues came in at 30% of the net and are up more than 140% from last year. This shows a marked improvement in the company's footprint and should provide a tailwind for subscription revenue in the coming quarters.

Moving down the report, Ituran Location And Control experienced mixed margin growth on a segment level. Margin in the subscription segment fell on a YOY basis while product margins improved. Subscription margin declined because of one-off factors experienced in the prior year’s quarter while product margins experience leverage of sales. Moving down to the bottom line, the company's EBITDA was up 30% YoY to outpace revenue by 340 basis points and drive GAAP earnings of $0.44. The GAAP earnings beat the consensus by $0.07 and helped strengthen what is already a very strong balance sheet.

Ituran Location And Control Has A fortress balance sheet

Ituran Location and Control's net cash is down slightly over the past quarter but there is a mitigating factor. The net cash is down slightly due to an increase in debt offset by an increase in cash. The company’s cash position is up by $8 million or more than 1000 basis points from the previous quarter while debt is up due to acquisition. Even with the new debt, the company’s balance sheet is still a fortress with less than 1.X leverage and ample coverage. The dividend is worth about 2.5% at current share prices and has only one caveat. The payout is a little inconsistent due to the company’s efforts to preserve capital and maintain its fortress balance sheet. 

The Technical Outlook: Ituran Is About To Set A New High 

Ituran Location and Control's second-quarter report was strong enough to drive shares up more than 6% in the early part of the day. Price action is creating a strong green candle and confirming reversal at the $24 level. Now that price action is above the short-term moving average and the baseline of its double-bottom reversal pattern we expect to see it advance another $3 or so in the near term. Our target is near $29.50, if the stock is able to surpass this level we see it extending the rally indefinitely on the back of global auto market strength.