Brazilians such as motorcycle owner Richard da Silva Tardochi are fueling a boom in Ituran Location and Control Ltd. (ITRN)’s stolen auto tracking business.
Sales in Brazil, home to the world’s highest auto theft rate according to a 2013 ranking of 34 countries, are climbing so fast that the South American nation now contributes as much revenue to Ituran as its home market Israel. Ituran’s stock soared to a record this month and has climbed 57 percent over the past year, rewarding international investors from hedge fund Baupost Group LLC to Aberdeen Asset Management Plc.
Tardochi bought a tracking device, at a fraction of the cost of theft insurance, after shelling out $7,100 for a jet black Honda CB-300R three years ago. The decision paid off a few months later, when Ituran’s system thwarted thieves who had pulled the bike out of his garage in the outskirts of Sao Paulo.
“The company has managed to gain traction in a huge market with a burgeoning middle class and some of the world’s highest rates of car crime,” William Scholes, who helps oversee $318 billion at Aberdeen in London, said in an e-mail on Jan. 23. “We are encouraged by the rapid rise in subscriber numbers.”
The stock’s rally beat the 30 percent gain in the Bloomberg Israel-US Equity Index of the most-traded Israeli stocks in New York over the past 12 months and the Standard & Poor’s 500 Index’s 19 percent. Ituran rose 1.9 percent to $22 in New York yesterday. The shares in Tel Aviv added 1.4 percent to 76.80 shekels at 2:48 p.m., the most in three weeks.
With crime climbing in Brazil, the Azur, Israel-based company is telling investors to expect record sales and profits of tracking devices in 2013. Brazil and Israel each accounted for 45 percent of revenue last year, Ituran’s co-chief executive officer Eyal Sheratzky.
Ori Licht, head of research at Israel Brokerage & Investments Ltd, said the company’s revenue may be weakened by the depreciation of the Brazilian real, which has plunged 18 percent over the past 12 months against the dollar. Business may also be hurt by Brazil’s faltering economic expansion and the expiration of tax incentives for new car sales, he said.
“They have exposure to the real and the real is not performing well, and the tax relief will not continue into 2014,” Licht, who has a neutral recommendation for the stock, said by phone Jan. 23 from Tel Aviv.
Brazil’s economy probably grew 2.3 percent last year, following a 1 percent expansion in 2012 and 2.8 percent growth in 2011, according to economist estimates compiled by Bloomberg.
Ituran’s Sheratzky said the company has been waiting for years for Brazil to implement a law that would require auto manufacturers to install tracking devices in new cars. Implementation of the law is now supposed to occur in July 2014, according to Anfavea, Brazil’s association of car manufacturers.
While the law would be “the cherry on the cake,” Sheratzky says he’s “not very optimistic” that the regulation will be implemented, because of bureaucratic hurdles.
“We continue forward,” he said by phone from Tel Aviv on Jan. 14. “Market potential is huge without this regulation.”
Brazil had the highest car theft rates among 34 countries in 2012, with 140 of every 10,000 vehicles stolen, according to a report by Secured By Design Ltd., a consultancy specializing in vehicle security based in the U.K. South Africa, the country with the second-highest car theft rate, saw 101 of every 10,000 vehicles stolen in 2012.
Brazil’s car-theft rate improved from 2000 to 2008, but it has climbed each year since 2009, as car jackings and stolen car sales that fund other illegal activities such as drugs and firearms fuel demand, according to Secured By Design’s report, which analyzed statistics from the Brazilian government.
Car thefts in the state of Sao Paulo rose about 10 percent from the year-earlier period to 197,639 in the first 11 months of 2013, according to Sao Paulo state government’s website.
Sao Paulo governor Geraldo Alckmin approved a law this month requiring auto-parts dealers in the state to register with the government in a bid to quash the market for stolen parts.
Ituran’s overall subscribers increased about 10 percent in 2013, from 667,000 at the end of 2012, according to Sheratzky. The company now has about 300,000 subscribers each in Brazil and Israel, another 100,000 in Argentina, and about 30,000 in the U.S., he said.
In 2011, Ituran changed its strategy in Brazil to focus on online sales and car dealerships, instead of selling its products through insurance companies’ policies. The company now makes about 80 percent of its sales in Brazil without insurers, something that has allowed it to reach a broader swath of customers and improve margins.
“We started reaping the fruits of this change in the end of 2012,” Sheratzky said. “This will continue in 2014, and I believe we can show growth in all parameters.”
Ituran’s sales rose 15 percent to $42.4 million in the third quarter. The company is scheduled to report annual earnings on Feb. 19.
Tardochi, the Honda owner, said crime is soaring in his neighborhood, making the 50 reais ($20.65) he pays Ituran each month for the service a necessary expense.
“It’s getting worse,” he said. “Everyone I know has been robbed.”
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