The latest award is with utility group ScottishPower to supply fleet tracking and driver behaviour solutions for over 1,600 of its vehicles in order to improve operational efficiency and management of the technical fleet, adding to a growing list of Trakm8's blue chip clients including BT Fleet, the AA, Eon, Direct Line and Marmalade. It's a lucrative line of business too as analysts at brokerage finnCap believe that the company will grow its revenue from £17.9m to £26.5m in the 12 months to the end of March 2016, rising to £34m in the new financial year. In turn, this robust revenue growth is forecast to have more than doubled pre-tax profit to £3.8m for the year just ended, rising to £6.4m in the 2017 financial year, to generate EPS of 11.5p and 17p, respectively.
Some of that growth is admittedly from acquisitions, but it's worth noting that revenues on a like-for-like basis were up 28 per cent in the 12 months to end March 2016. And it's not as if acquisitions are performing poorly as last autumn's earnings-enhancing bolt-on acquisition of Route Monkey, a software provider specialising in solutions that optimise fleet route planning, for both conventional and electric vehicles, recently won a three-year contract extension from Iceland Foods worth £500,000. The acquisition added new and complementary technology capability to Trakm8 in the field of fleet route planning; enhanced the service offering through the integration of Route Monkey's algorithms and related software into Trakm8's telematics and camera solutions; and provided Route Monkey access to a larger customer base and sales force.
Trakm8 has also recently signed important reseller contracts with BT Fleet who will resell the company's products to its existing and new customers. These new awards add credibility to finnCap's forecasts that point towards revenues rising by 31 per cent to £34m in the 12 months to end March 2017 to lift pre-tax profits by two thirds from £3.8m to £6.4m. I understand that around £3m of the £8.2m revenue increase forecast this year reflects the contribution of Route Monkey and with the benefit of high margins this should account for £1m of the £2.6m profit increase. In the 2014 calendar year Route Monkey posted pre-tax profit of £700,000 on revenue of £1.7m, so it's a fast-growing business.
Key takes
Another key take from me in the pre-close update was Trakm8's cashflow generation. Some bear raiders of the shares have questioned the company's cashflow, but by my reckoning the business generated a record £1.7m of free cash flow in the second half to end the financial year with net borrowings ending the year at less than £1m, or less than half net debt of £2.2m at the end of September 2015. The cash position is certainly strong enough for the board to declare a maiden dividend of 2p a share at a cost of £680,000 for the year just ended. This is a welcome move, and one that puts the shares on the radar of small cap income funds.
I would also flag up that with more than 150,000 units reporting to Trakm8's servers, up from little over 100,000 only 12 months earlier, then recurring revenue - mainly monthly subscriptions - is growing fast too, up from £5.6m to over £8m last year. So this is a business that is winning new contracts, growing recurring revenue and is set to benefit from the full impact of the Route Monkey acquisition in the current year.
It's certainly a good news story and one that I have been following since I recommended buying Trakm8's shares at 92p less than 15 months ago ('Zoning in on a profitable price move', 16 Feb 2015). True, the shares have made little progress since I last rated them a buy at 300p at the start of this year (‘Tech watch’, 13 January 2016), but from my lens at least the share price action is skewed towards a break above the key 300p resistance level that has forced a retreat twice in the past month. There is little resistance at all between the 300p level and last December’s all-time high of 409p.
It's a chart break-out that the forthcoming financial results due to be released on Monday, 4 July 2016 would more than justify, and ahead of that release I maintain my buy advice with the shares trading on a bid-offer spread of 285p to 290p. My target price remains 400p, just shy of the record high hit last December. Buy.
Please note that I have written four columns today, all of which are available on my IC home page...
