- Mid-single-digit EPS upgrades for 2023 and 2024
- 2024 forward PE ratio of 11.6 well below peers
Journeo (JNEO:268p), a transport systems provider, has raised full-year revenue and earnings guidance again.
Buoyed by both organic and acquisitive growth, and higher than expected second-half sales of lower-margin products, the group’s full-year revenue is likely to come in 10 per cent higher than analysts at house broker Cavendish had been predicting. This implies revenue will more than double from £21.1mn (2022) to £46mn (2023) to deliver a quadrupling of pre-tax profit to £3.9mn and 100 per cent higher earnings per share (EPS) of 20.6p.
The bumper year-on-year growth partly reflects two earnings-accretive acquisitions: East Midlands-based Infotec, a leading rail passenger information equipment provider; and MultiQ Denmark, a Danish intelligent transport systems technology provider. It is also due to strong sales order intake within the group’s core fleet operating systems.
Furthermore, as the effect of component shortages in supply chains improve, and higher-margin software-as-a-service (SaaS) contracts for Journeo management software commence, then the group margin is expected to rise in 2024. Cavendish has taken note, upgrading its 2024 EPS estimate from 22.1p to 23.1p, implying 12 per cent annual growth. The brokerage also expects net cash to more than double next year from £3mn to £7.7mn (48p), buoyed by free cash flow (FCF) of £5.9mn. On this basis, the shares are rated on a forward price/earnings (PE) ratio of 11.6, a 30 per cent rating discount to peers, and offer an FCF yield of 13.8 per cent.
The latest upgrade and modest rating explain why Journeo’s share price has risen 30 per cent since I last highlighted the investment case (‘Six micro-cap shares worth buying’, 9 November 2023), taking the gain to 55 per cent since I initiated coverage (‘Alpha Research: The cheap small-cap thriving on transport spending’, 16 June 2023). Reflecting the ongoing sales momentum, FCF generation and ratings discount to peers, I raise my target price to 330p (from 300p), below Cavendish’s upgraded target of 385p (338p). Buy.
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