We’ve been quietly watching Tracsis (TRCS:AIM) over the past few weeks looking for the right entry point for investors. We believe we have now found one.

Tracsis is a Leeds-based smart transport analytics and infrastructure technology company that Shares has followed closely since 2013. Back then the stock was changing hands for 164.5p yet even after rallying 200%-plus in five years we still see the investment story as compelling.

This week’s first half trading update sent a positive message. It should put to bed any lingering doubts of a prolonged hangover from last year’s early growth worries.

Half year revenues will top £18m and deliver earnings before interest, tax, depreciation and amortisation (EBITDA) of £4.3m. It means equivalent growth over last year of 15% and 23% respectively, and builds on what was a very firm end to the previous 12 months.

SMOOTHER, FASTER, BETTER TRANSPORT

Effectively, Tracsis provides the technology tools to help Network Rail and train operators improve performance, cut capacity problems and keep services running. It also provides technology-led insights on pedestrian and road traffic for infrastructure planning or organising large and complex events.

Acquisitions have always acted as an important growth lever for Tracsis. A net cash position of £18.5m puts the company in a strong position to take advantage of opportunities that come its way.

Acquisitions worry some investors but Tracsis has an excellent record, in both paying the right price for the right businesses and integrating them.

In the past five or so years it has bedded in eight acquisitions successfully. Importantly, deals are always struck using funds generated by the company, while only small amounts of new shares are issued to provide incoming managers with attractive incentives for future success. That means Tracsis shareholders face little
or no dilution.

We wouldn’t be surprised to see one or two meaningful deals sealed by year end, adding to the small purchase of a couple of passenger compensation operators at the start of February.

On a consensus-based price to earnings (PE) multiple of 22 the stock may not look cheap. But the company deserves a premium rating given a superb track record.

Investec believes there is potential for earnings per share in the financial year to July 2019 to be ‘materially’ higher than currently forecast, based on organic upgrade potential and further M&A. (SF)

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