Tracsis expanding into the US

Tracsis (TRCS) provides transport software and data analytics services. The company is split between its rail technology services division and its data, analytics, consultancy and events division. Rail has more consistent revenue as there are multi-year contracts. Events and consultancy had a rougher time during the pandemic, but has bounced back strongly in the last year.

Rail revenue actually fell 3.3 per cent compared with the first half of last year because of lower revenue from remote condition monitoring. Apparently, this performance is “consistent with the historic cyclical nature of the customer investment cycle”.

Tracsis has hitherto only operated in the UK rail market but after the period end it closed a deal for RailComm, a US-based rail technology company that provides rail yard automation and computer aided dispatching. This provides a platform for international expansion and will help hedge against the cyclical nature of the UK rail industry.

Most of the growth this half year was generated by the rebound in demand for event transport planning. Events revenue were up to £6.8mn from £2.2mn thanks to a pandemic recovery. Traffic data revenue was also up 35 per cent to £4.3mn, although the first half of the year was still impacted by Omicron.

The good thing about these specialised software companies is that there is rarely much competition in the market. If countries are going to achieve net-zero then more rail transport will be essential, which should drive investment in the industry. In July, the US Senate passed a bill for a $66bn (£50.7bn) US rail funding package – which Amtrak described as a “historic level of investment”.

With a forward PE multiple of 25.4 Tracsis is not cheap, but compared to some other software valuations it is hardly an outlier. A 2023 free cash flow yield of 4 per cent is also comforting. We are long on railways which means we are also long on Tracsis. Buy.

Last IC View: Buy, 615p, 3 April 2020