- Order intake up 11 per cent to £30mn
- Net cash materially ahead of expectations
- Strong momentum in new financial year
- 12 per cent EPS growth forecast in 2024
Journeo (JNEO:257p), a transport systems provider, has more than doubled revenue to £46mn, quadruped pre-tax profit to £3.9mn and doubled earnings per share (EPS) to 20.6p in its 2023 financial year.
That’s in line with house broker Cavendish’s upgraded forecasts at the end of last year and represents 18 per cent outperformance of earnings expectations in the market when I initiated coverage when the share price was (‘Alpha Research: The cheap small-cap thriving on transport spending’, 16 June 2023).
The group operates fleet systems, passenger transport infrastructure systems and is a provider of software management for rail information displays in stations. Demand is being driven by blue-chip transport operators and local authorities tapping into UK government funding to upgrade their services so public transport becomes the first choice for passengers.
Strong sales order intake especially within the group’s core fleet operating systems helped drive up organic revenue 20 per cent to £25mn and Journeo also benefited from £21mn revenue contribution from two acquisitions: East Midlands-based Infotec, a leading rail passenger information equipment provider; and MultiQ Denmark, a Danish intelligent transport systems technology provider.
Moreover, the installation of a third assembly line at its manufacturing facility has led to a more rapid recognition of trade receivables on Infotec’s $18mn (£14.2mn) contract to supply displays for 535 new Kawasaki R211 subway trains in New York City. This helped push up closing net cash to £8.1mn (51p), well ahead of Cavendish’s £4.7mn estimate, and a sum equating to almost a fifth of Journeo’s market capitalisation of £41.5mn. The burgeoning cash pile offers the board firepower to make more earnings accretive bolt-on acquisitions, too.
That possibility is certainly not priced in as the shares still only trade on a 2024 price/earnings (PE) ratio of 11.1, representing a 33 per cent rating discount to peers, after factoring in 12 per cent forecast growth in current year EPS to 23.1p. So after taking account of the ongoing contract momentum, bumper free cash flow generation and unwarranted ratings discount to peers, Cavendish’s (previously) upgraded target price of 385p is not unreasonable, albeit I am maintaining my own 330p target price for now. Buy.
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