Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Why the EROAD (ASX:ERD) share price is falling
The New Zealand-based Eroad Ltd (ASX: ERD) share price has moved into the red today after an underwhelming second-quarter update.
Currently, the Eroad share price is down 8.33%, to $4.84.
Eroad develops and markets technology solutions for managing vehicle fleets, improving driver safety and supporting regulatory compliance.
Marginal growth offset by North America
Key highlights for the second quarter ending 30 September include:
- Total contracted units growth of 2,348, a 1.8% improvement on the June quarter
- New Zealand growth of 2,892 units, a 3.1% quarterly improvement
- Australia added 1,291 units, a 34% quarterly improvement, albeit off a low base
- North America lost 1,835 units, a 5.1% quarterly reduction
- Clarity dash cam sales of 1,157, total number now 4,141
- Group asset retention rate of 94.1%
Lockdowns across Australia and New Zealand limited Eroad’s ability to gain access to worksites and visit customers.
Furthermore, the company noted difficult macroeconomic conditions – particularly in respect to North America.
Driver shortages, loss of contracts and supply chain constraints have weighed on Eroad’s customer base resulting in purchase deferments.
Positively, only 30% of churn is due to customers moving to a competitor.
As flagged in the Q1 update, Eroad had an enterprise customer return 1,751 units due to aligning its technology with that of its acquirer.
Revenue guidance dropped
As a result of the underwhelming quarter and purchase deferments, management has cut revenue guidance.
Subsequently, FY22 revenue growth is expected to be between 10% and 13%. Previously management had guided for growth above FY21 of 13%, but below FY20 growth of 32%.
Earnings before interest, tax, depreciation and amortisation (EBITDA explained) remains on track to be around FY21 levels of 33.5% before Coretex acquisition costs.
“With the easing of COVID-19 restrictions and their impacts, the launch of EROAD’s next-generation Android platform and hardware, the release of the standalone variant of the Clarity dashcam, and the completion of the Coretex acquisition, EROAD expects increased sales momentum in FY23”
Moreover, Eroad also noted staff challenges due to the closure of international borders.
My take
The words “purchase deferments” worry me as a shareholder.
We’ve seen this before with Appen Ltd (ASX: APX), which is still running with the same line a year later. Unfortunately, the market doesn’t like uncertainty, and has sent Appen shares down 70% over that period.
If customers are deferring decisions, it may mean the product isn’t mission-critical.
It’s interesting that management noted macroeconomic issues as a headwind. North America is largely open now, and with supply constraints, Eroad theoretically should be a beneficiary.
Eroad will be hosting its half-year result in November. I’m expecting a better outline of how it plans to accelerate growth and restore market confidence.
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