EROAD is a transport technology and services company which provides electronic on-board units and software-as-a-service to the heavy and light vehicle transport sectors in New Zealand, Australia and the US. We hold EROAD in the Growth and Emerging funds and it has delivered strong returns for both funds. Since we initiated a position in the company in mid-2017, the stock has appreciated from $2.20 to $3.91 (as at 8 January), a return of almost 80%.
EROAD listed in August 2014 at $3, representing an enterprise value to forward revenue multiple of 7.3. The elevated multiple reflected lofty growth expectations, predominantly dependent on the company’s expansion into the US market. Therefore, when the US expansion hit a bump in the road in 2015, the stock was punished by the market, falling from almost $4 to around $1.70.
While EROAD’s New Zealand business has performed strongly since listing, the US has always represented the “game changer” opportunity for the business. The New Zealand market opportunity is around 500,000 vehicles while the US Department of Transportation’s Federal Motor Carrier Safety Administration (FMCSA) has mandated electronic logging devices be installed in 4 million interstate vehicles.
The FMCSA decision initially encountered pushback from industry in the form of legal proceedings, however in June the US Supreme Court upheld the FMCSA’s decision. Correspondingly, over the last several months EROAD’s US business has started to show encouraging signs, with the number of contracted units growing 31.1% over the September quarter and 119.1% annualised over the prior six months. This followed EROAD significantly expanding its team in the US including the recruitment of a new head of sales.
These early signs of success have restored confidence in the outlook for EROAD, driving the strong share price performance.
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