- Exceptional costs hit profitability
- Significant North America opportunity
Transport technology group Tracsis (TRCS) is in the process of making some major changes to its operating model. In the not-too-distant past, the business relied more heavily on what are known as perpetual licence fees, which involves supplying software to users in exchange for a one-time payment.
This is a strategy management is looking to move away from in favour of more predictable recurring revenues. One of the major reasons turnover fell in the six months to the end of January was that Tracsis delivered a £1.2mn perpetual software licence deployment in the first half of 2023, which of course was not repeated in the same period this year.
In North America, where the group is looking to expand its footprint, these types of one-off payments are the norm in rail industry software. The company has warned that there is likely to be more volatility in this market as it seeks to introduce a recurring, software-as-a-service model.
The group also incurred £1.3mn in exceptional cash costs in the first half, which hit its statutory profit figure. “That's all to do with transforming our operating model, making headcount reductions and just getting this business into the right shape and structure to access a rapidly growing pipeline,” said chief financial officer Andy Kelly.
Management has previously indicated that FY2024 revenue growth will be weighted toward the second half, so these interim figures should not have come as a shock to investors. FactSet broker consensus puts the shares on a forward price/earnings multiple of nearly 21 times – which looks a bit steep given the backward step in revenue and profit.
However, the business remains in a net cash position – meaning there’s scope for acquisitions – and it operates in a growth sector. Any regular rail user knows there’s scope for modernisation and improvement. We therefore retain a (cautious) buy rating.
Last IC view: Buy, 730p, 16 November 2023
TRACSIS (TRCS) | ||||
ORD PRICE: | 845p | MARKET VALUE: | £255mn | |
TOUCH: | 830-860p | 12-MONTH HIGH: | 1,030p | LOW: 690p |
DIVIDEND YIELD: | 0.3% | PE RATIO: | 54 | |
NET ASSET VALUE: | 225p* | NET CASH: | £14.5mn |
Six months to 31 Jan | Turnover (£mn) | Pre-tax profit (£mn) | Earnings per share (p) | Dividend per share (p) |
2023 | 39.2 | 2.26 | 5.55 | 1.00 |
2024 | 36.6 | -0.27 | -1.62 | 1.10 |
% change | -7 | - | - | +10 |
Ex-div: | 09 May | |||
Payment: | 24 May | |||
*Includes intangible assets of £55.2mn, or 183p a share |