Tracsis PLC is a FTSE AIM 100 Index listed Company, which provide services related to software, hosting, consultancy and bespoke technology solutions to the traffic and transport sector. The business comprises of two main offerings – ‘Traffic and Data Services’ and ‘Rail Technology and Services’. The Traffic and Data Services division deals with data capture, interpretation, and analysis of traffic and pedestrian movement. The Rail Technology and Services division includes the application of remote condition monitoring technology, software development, and associated consulting services. The Company’s products and services are principally used for reducing cost, increasing efficiency, improving asset performance, and enhancing decision-making capabilities.  The Group employs around 450 employees in facilities across Ireland and the UK. The Group has grown through both acquisitions and technology investments since the establishment in 2004.  


 (Source: Company Website)

Key Fundamental Statistics



Segment Analysis

The Company bifurcates the results into the following two segments:
 

1. Rail Technology and Services: Comprise of Software, Remote Condition Monitoring, and Professional Services.

2. Traffic & Data Services: Includes collection and analytical services of traffic, traffic management and event planning, system development and data analytics.

3. Geographically, the revenue is divided into three regions – the United Kingdom, North America, and Rest of the World. The Group’s largest customer represented 18% of the total revenue in FY19, which was 14% in FY18.
 

 (Source: Interim Report, Company Website)

Synopsis of Recent Developments – Acquisition and Contract Wins

26 May 2020: The Group secured two major rail contracts. The first contract is £7 million multi-year contract through the TRACS Enterprise suite. While the second contract win is for the provision of remote condition monitoring technology, the contract was valued at £700 thousand.

4 May 2020: Following the exercise of employee options, the Company issued 33,247 equity shares of 0.4 pence. In addition to this, the Company also issued 1,836 equity shares under the Staff Option Share plan.

11 March 2020: The Company completed the acquisition of iBlocks Limited (UK based Software Company for smart ticketing solutions). The acquisition shall bolster the capabilities of the Tracsis in the UK rail market.

Operational Achievements of FY19

Organic: Signed five-year agreement with a major Train Owning Group, secured multi-year software deals with UK rail clients, and witnessed a high level of recurring revenue and software renewals.

Overseas Markets: Acquired Compass Informatics Limited for increasing presence in Ireland. Also, the Group boosted up the sales in North America and Australia.

Acquisitions: Completed three acquisitions with total revenue contribution of £5.9 million- Bellvedi Limited, Cash & Traffic Management Limited, and Compass Informatics Limited.

Top Shareholders Statistics
 

Update on Trading Performance & Impact of Covid-19 Pandemic (9^th July 2020)

The Group’s trading since the starting of the pandemic has been better than the original expectations. The Company expects revenue for the current year will be impacted by around £10 million, due to the project postponements and cancellations under Events business and Traffic Data business. TRCS expects full-year revenue to be around £46 million. Despite the challenging times, the Group’s Traffic & Data Services division continues to secure new contracts and cost control measures as taken will improve the profitability. Driven by higher recurring software revenue, the Company’s Rail Technology & Services business performed well. The Group continues to deliver large multi-year projects and with new contract wins and a strong pipeline of opportunities in future. The Company’s cash balance after payments related to acquisition and tax stood at around £16 million.

Operational Highlights – H1 Financial Year 2020 (31^st January 2020)

In the H1 financial year 2020, the Company showed strong performance from Traffic and data business. The Group acquired Compass Informatics, Bellvedi and CTM in FY2019. All businesses performed as expected with respective synergies and integration capabilities realised already. TRCS continues to make an investment in technology across the business units. Under the Rail Technology division, the Group has multiple large tenders at final negotiation stages. The Company completed the acquisitions of iBlocks Ltd in March 2020 and added new products and capabilities to Rail Technology especially related to smart ticketing. The Group also won an initial contract for software business related to risk and safety management, OnTrac, which is expected to result in licence deployment for multi-year across the enterprise.

Financial Highlights – Improved Financial Performance in H1 FY2020 (31^st January 2020)


(Source: Interim Report, Company Website)
 
In the first half of the financial year 2020, driven by a strong performance from Traffic and data business for the period, the revenue increased by 41% to £26.4 million (H1 FY2019: £18.8 million). The Gross profit stood at £15.9 million in H1 FY2020 (H1 FY2019: £11.6 million), reflecting an increase in revenue. After the adoption of IFRS 16, the adjusted EBITDA stood at £5.6 million in the first half of the financial year 2020 (H1 FY2019: £4.2 million). The operating profit (before exceptional items) stood at £2.6 million in H1 FY2020 (H1 FY2019: £2.4 million). The Group’s statutory PBT on consistent basis stood at £2.4 million in H1 FY2020 (H1 FY2019: £2.1 million), driven by strong growth of revenue and operating profit. The profit for the period stood at £1.9 million in H1 FY2020 (H1 FY2019: £1.7 million). The basic earnings per share stood at 6.76 pence in H1 FY2020 (H1 FY2019: 5.97 pence), and diluted earnings per share stood at 6.56 pence in H1 FY2020 (H1 FY2019: 5.78 pence). The cash balance increased to £26 million as on 31^st January 2020 (31^st July 2019: £24.1 million and 31^st January 2019: £18.7 million).

Financial Ratios – Strong Liquidity versus Industry Median

Reported profitability metrics for the first half of the financial year 2020 were slightly lower against the last year data for the same period. The Group still managed to show decent profitability, reflecting higher revenue generated and better control over expenses. On the liquidity front, Tracsis Plc’s current ratio was higher than the industry median of 1.18, reflecting sufficient current assets to pay short-term obligations, which shows a robust liquidity profile to tackle the uncertainty due to covid-19 outbreak. On leverage front, the debt-equity ratio was 0.03x, which was lower as compared to the industry median, reflecting that the Company is less leveraged as compared to the industry.  

Share Price Performance Analysis


Daily Chart as on 14^th July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

On July 14, 2020, at the time of writing (before the market close, at 11:18 AM GMT+1), Tracsis Plc shares were trading at GBX 582.00, down by 2.18% against the previous day closing price. Stock 52 week High was GBX 840.00 and low was GBX 420.00, respectively.

Bullish Technical Indicator

From the technical standpoint, 90-day RSI is currently in an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Valuation Methodology

Price/Earnings Approach (NTM)



To compare Tracsis Plc with peers, Price/Earnings multiple has been used. The peers are Aptitude Software Group Plc (Price/NTM Earnings was 37.22), Zoo Digital Group Plc (Price/NTM Earnings was 33.20), Alfa Financial Software Holdings Plc (Price/NTM Earnings was 21.41), Nucleus Financial Group Plc (Price/NTM Earnings was 18.70) and IT Link SA (Price/NTM Earnings was 7.54). The Average of Price/Earnings (NTM) of the company’s peers was 23.61x (approx.).

Tracsis PlcVs FTSE AIM 100 Index (5 Years)


(Source: Refinitiv, Thomson Reuters)

In the last five years, Tracsis Plc share price has delivered 48.76 per cent returns as compared to 31.20 per cent returns of FTSE-AIM 100 index, which shows that the stock has outperformed the index during the last five years.

Industry Outlook Dynamics

As per the report from MarketsandMarkets Research, the market size for traffic management services is projected to reach USD 57.9 billion by 2024 from USD 30.6 billion in 2019, representing a Compounded Annual Growth Rate (CAGR) of 13.6% between 2019 to 2024. The key drivers for growth include Rapid Urbanisation (population growth, and increasing requirement of mobility as a service), Big Data and Connectivity (increasing usage of connected devices, intelligent transport system, and visualisation), and need for Enhanced Performance (for safety, asset optimisation, delay minimisation and integrated solutions).

Growth Prospects and Risk Assessment

The Group continues to invest heftily in the technology base and continue to focus on developing next-generation products for the transport industry. Moreover, the Group has secured several contracts to sustain the organic growth in the future. Despite the Covid-19 challenges, Rail Technology & Services businesses have been performing well due to the high levels of recurring Software revenue. Moreover, the Group has a substantial pipeline for future opportunities. Also, the Group is relatively immune to the risk arising from the Brexit uncertainties since only around 5% of Group sales comes from European Union customers. The Company keeps on launching new platforms and upgrade the old products and services to become one of the market leaders in the software and computer services sector. The Company, through the wide-ranging scope, has accelerated growth organically and through acquisitions.

However, there are certain potential risks which can impact the business. Reduced government funding can derail future opportunities. The heavy reliance on large customer poses uncertainties to the obtained revenue. Increasing competition can also put pricing pressure in the future. Moreover, failure to adopt the technological changes can reduce the level of business. In the short-term period, the market environment remains uncertain and volatile because of Covid-19 mayhem. The government restrictions have been impacting the activity level across the United Kingdom. Global political uncertainty regarding trade policy also poses a risk for the Group, including protectionist measures and regulation or legislation in local markets.

Business Outlook Scenario

The Group’s operations are impacted by the outbreak of covid-19. Despite the challenges in the economic environment, the trading stood better than the expectations. The pandemic resulted in project postponements and cancellations. The Group’s Rail Technology & Services business performed well with higher recurring Software revenue and secure new contracts under Traffic & Data Services division. TRCS continues to deliver large multi-year projects and has a strong pipeline of opportunities in future. The financial performance increased in the first half of the financial year 2020. Both the top-line and the bottom-line performance have improved, with an improvement in the profitability for the period. The Group added new products and services related to smart ticketing under the Rail Technology business, with the acquisitions of iBlocks Ltd. The acquisitions made in the financial year 2019 were successfully integrated, and synergies were achieved. The Company won initial contract for OnTrac and it is expected to result in a  multi-year licence deployment later in FY2020.


 (Source: Company Website)
 
Over the course of 3 years (FY16 - FY19), the company’s revenue surged from GBP 24.06 million in FY16 to GBP 43.33 million in FY19. Compounded annual growth rate (CAGR) stood at 21.66 per cent.

Based on the decent prospects and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 582.00 (as on 14 July 2020, before the market close at 11:18 AM GMT+1), with lower double-digit upside potential based on 23.61x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

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