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Tracsis has US railway opportunity

Recent industrial actions will encourage railway companies to invest more in software
April 3, 2023
  • Group organic revenue grows 13 per cent
  • Interim dividend returns

Tracsis (TRCS) sells transport software. Around half its revenue comes from railway software, which does everything from monitoring the trains to improving the customer experience. The other half of the revenue comes from events, data analytics and consultancy, which helps in logistical organisation for large events.

Year-on-year rail technology revenue increased 69 per cent to £19.7mn. The acquisition of RailComm in North America boosted reported revenue, however, organic growth was also impressive, rising 25 per cent. There were new smart ticketing contracts in the US and record remote conditioning monitoring revenue in the UK.

Data, analytics and events has now fully recovered from the Covid-19 disruption and revenue rose 11 per cent to £19.5mn. However, adjusted cash profit fell from £2.2mn to £1.9mn but this figure included £400,000 paid to staff in cost-of-living allowances, strip that out a profit rose slightly. 

The biggest opportunity comes from the railway business. Rail technology has a cash profit margin of 28 per cent which is much higher than the 10 per cent in data and analytics. The acquisition of RailComm provides opportunity for cross-selling in the US which recently announced large subsidies for the rail industry. As railway revenue grows, group margins should rise. 

Management warned the recent railway strikes in the UK might disrupt the business in the short run. But in the long-run this is an opportunity. When employees refuse to work and ask for more money, it speeds up the automation process.

FactSet broker consensus forecasts EPS to rise to 40.7p in 2024 which gives a price to earnings ratio of 22. It is a little expensive but we are bullish on rail prospects. Speculative buy. 

Last IC View: Buy, 925p, 09 Nov 2022

TRACSIS (TRCS)    
ORD PRICE:890pMARKET VALUE:£ 266mn
TOUCH:880-900p12-MONTH HIGH:1,075pLOW: 850p
DIVIDEND YIELD:0.3%PE RATIO:112
NET ASSET VALUE:212p*NET CASH:£12mn
Half-year to 31 JanTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
202229.21.282.70nil
202339.22.265.551.00
% change+34+76+106-
Ex-div:20 Apr   
Payment:05 May   
*Includes intangible assets of £63.1mn or 211p a share.