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Tracsis building a head of steam

Tracsis is well positioned to help in the monumental effort of dragging Britain's railways into the 21st century
August 9, 2012

Witness the grim expressions of rail commuters passing through the country's main transport hubs on any morning of the week and the scale of Network Rail's task to drag the UK's rail network into the 21st century becomes apparent. But progress is being made and Tracsis is in the vanguard.

IC TIP: Buy at 138p
Tip style
Growth
Risk rating
Medium
Timescale
Long Term
Bull points
  • Riding on the need to make railways efficient
  • Rail franchise schedule looks supportive
  • Potential for expansion overseas
  • Share price momentum
Bear points
  • Reliance on few customers
  • Acquisition risk

For an industry that is heavily unionised with relatively inflexible working patterns - the average train driver is thought to be driving for about 44 per cent of his or her working day - significant shifts are occurring. The McNulty Report into the railways, published in May 2011, highlighted cost reductions as a priority for the industry and recommended train operators use optimisation technology for scheduling and crew rosters. This was followed by a Department of Transport report this year, which identified labour efficiency savings of £173m over the coming seven years.

Tracsis offers a suite of software and hardware designed specifically with transport industries in mind and fits well with Network Rail's drive to transform the UK's rail network through its 'intelligent infrastructure' programme.

The most widely used of Tracsis' products is its core TrainTRACS software, which helps optimise the use of crews across a network using algorithms rather than the traditional blackboard and chalk. Crucially, the software takes into consideration the vagaries thrown up by legal, health-and-safety and labour agreements specific to each train operating company. In total, 14 out of the UK's 20 train operating companies use TrainTRACS, leasing the software for between £50,000 and £110,000 a year dependent on size. Tracsis reckons using TrainTRACS can generate a 12 per cent improvement in efficiency, potentially worth up to £5m a year. True, relying on just a few customers is a risk, but Tracsis' software tends to be very 'sticky', with operators renewing throughout their operating franchise.

TRACSIS (TRCS)

ORD PRICE:138pMARKET VALUE:£34.2m
TOUCH:125-138p12-MONTH HIGH/LOW:138p55p
DIVIDEND YIELD:0.4%PE RATIO:See text
NET ASSET VALUE:35pNET CASH:£5.95m

Year to 31 JulyTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20080.80.392.5nil
20092.30.672.7nil
20102.60.582.5nil
20114.11.124.5nil
2012*8.63.210.10.5
% change+111+184+125-

Normal market size: 2,000

Market makers: 5

Beta: 0.3

*Broker forecasts

The core product was extended with the introduction of TRACSRoster last year, which can be used in conjunction with TrainTRACS or as a standalone product. It is used by six train operating companies and talks are ongoing with several others. In addition to software, Tracsis acquired hardware last year when it bought MPEC, its fourth acquisition since floating on Aim in 2007. MPEC's rugged data loggers are used to monitor the condition of rail track and points to spot potential problems. Further acquisitions could bring risks, but MPEC has been such a success that Tracsis has paid out a £1m deferred consideration that was not due for another year. Indeed, much of the impetus behind analysts' forecast upgrades in April and June was down to MPEC's performance. MPEC equipment has also begun trials in Scandinavia, suggesting potential for expansion overseas.

The third leg of the Tracsis business, consultancy, should come into its own as the rail refranchising cycle picks up in the next two years.