Journeo is on track for another year of growth

Buoyed by 20 per cent organic sales growth and the contribution from astute acquisitions, transport systems provider Journeo (JNEO:280p) quadrupled adjusted pre-tax profit to £4mn on 118 per cent higher revenue of £46.1mn in 2023.

Journeo's management software provides fleet operators with powerful tools to improve operational efficiency, revealing valuable data insights into vehicle performance in real-time. Sold as Software-as-a-Service (SaaS), the technology integrates with new and legacy solutions to provide a complete view of on-board system health, while enabling customers to perform key tasks more easily, such as video evidence handling, driver performance monitoring and safety management.

Revenue from the fleet systems business surged by a third to £16.3mn and, although divisional operating profit dipped slightly to £0.6mn, this only reflects lower-margin hardware installations that will drive up higher-margin software revenue.

Moreover, Journeo operates in market segments that have relatively few competitors and high barriers to entry due to a combination of technical complexity, unique solutions (backed up by internal intellectual property) and the management of long-lifecycle assets across a large geographic area. This creates a moat around the business. 

For instance, Transport for London has recently awarded Journeo contracts worth £3mn to supply and install digital wing mirror camera systems on 440 of the capital's buses to improve customer safety. Expect multiple follow-on orders. The group's passenger transport infrastructure division, which increased annual revenue by 5 per cent to £9mn, has its strongest order book ever, too.

International expansion

Last year’s eye-catching headline revenue growth was bolstered by two acquisitions: MultiQ Denmark, a leading Danish intelligent transport systems technology provider; and East Midlands-based Infotec, a leading provider of innovative display solutions and the UK's leading rail passenger information equipment provider, with more than 15,000 displays in operation.

Infotec was acquired at the start of 2023 to provide Journeo with greater market access for its products and technologies within the rail sector. The business had limited customer overlap with the rest of the group, thus providing cross-selling opportunities and exposure to Infotec’s international markets. The business has performed well, delivering £19.7mn of revenue, gross profit of £5.9mn (41 per cent of group total), operating profit (pre-central overheads) of £3.7mn, a healthy return on the £8.7mn acquisition price. Journeo’s directors believe they can increase Infotec’s 29 per cent gross profit margin, too.

Strategically, the €2.5mn (£2.2mn) acquisition of MultiQ in September 2023 expands the group into the Nordic markets and adds further scale with its cloud-based offering. MultiQ produced an operating profit of £0.15mn on revenue of £1.1mn in 2023.

Strong order book de-risks earnings

For the year ahead, analysts at house broker Cavendish expect 10 cent pre-tax profit growth to deliver earnings per share (EPS) of 22.1p. On this basis, the shares are rated on a prospective price/earnings (PE) ratio of 12.7, representing a 35 per cent discount to the peer group average. Peers include Tracsis (TRCS), Synectics (SNX), Vianet (VNET) and TT Electronics (TTG), companies that share similar characteristics to Journeo in terms of the services they provide.

Furthermore, Journeo’s cash pile is forecast to increase from £8.1mn to £10mn (60.6p), buoyed by free cash flow (FCF) of £3.1mn (18.8p), thus offering potential for acquisition-driven earnings upgrades.

Admittedly, the strong earnings momentum has not gone unnoticed as Journeo’s share price has risen 62 per cent since I first highlighted the buying opportunity (‘Alpha Research: The cheap small-cap thriving on transport spending’, 16 June 2023). However, offering 18 per cent potential share price upside to my 330p target price, and with the group continuing to win new orders, the investment risk remains to the upside. Buy.

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