Quartix taps into great growth potential

Quartix has a lean business model that outsources product manufacturing and assembly, using third-party components. Sales are conducted through remote telephone marketing and price-comparison websites as well as a trusted network of distributors and installers. The telematics focus is on renting its technology to clients, which improves sales visibility. Recurring sales account for nearly 90 per cent of revenues from its main client base: commercial fleets of 3 to 50 vehicles.

Quartix also targets "pay as you drive" motor insurers, who use its black boxes to discourage bad driving, inform premiums and quickly react to incidents. That business took off in 2013 following a partnership with data-analysis firm Wunelli, and now accounts for a third of revenue.

While the insurance business is lower margin, it is allowing the company to boost production volumes, which lowers per-unit costs. Data also feeds into a mushrooming database on road usage, driving risks and accident hotspots, which could prove valuable down the road. It may also pave the way into new markets such as emergency services and commercial vehicle insurance.

Quartix, which plans to publish its maiden results in early March, continues to gain traction. In the UK, it has amassed over 5,000 commercial fleet customers and installed over 67,000 tracking systems for motor insurance providers - 23 per cent of those in the first half of 2014. It also operates in France - Europe's largest light commercial vehicle market - and opened its first US sales office in 2014. Ample headroom for growth remains, as only 28 per cent of commercial fleets in the UK and Ireland use vehicle tracking systems; that figure is a fifth in North America and a tenth in France. Next stop could be China, where telematic-unit installations are expected to more than double to 12m by 2018.

The upshot has been rapid growth. Pre-tax profit soared 45 per cent to £3.1m in the first half of 2014, driven by a 23 per cent surge in fleet sales. Operating cash flow leapt 57 per cent to £3.4m, underpinning a prospective 3.4 per cent yield this year. While hefty investments in research and overseas expansion are expected to weigh on short-term earnings growth, broker finnCap still expects an operating margin north of 30 per cent. It has pencilled in pre-tax-profit growth of 16 per cent in 2015 followed by 19 per cent in 2016, along with a 6.6p dividend - a 4.6 per cent forecast yield.