There are important reasons why 2021 could be a really good year for the Leeds-based transport infrastructure and analytics software company Tracsis (TRCS:AIM).

For years Tracsis has scored highly for earnings quality, cash flow and operating efficiency, based on Refinitiv data.

It has had a golden touch with acquisitions, always self-funded from internal cash flow and struck on relatively attractive terms. This has earned the company a growing number of fans.

We believe 2021 will herald a more ambitious phase for the company that will accelerate core growth and crank profit margins higher.

This may seem an odd time to be taking the proverbial bull by the horns, given the huge disruption Covid-19 has had on transport networks and mobility for individuals this year. But Tracsis has used the pandemic to assess its opportunities and will in future concentrate on the rail sector which makes sense once you look at the facts.

Tracsis’ business is largely split into rail technology – including software, consultancy and remote condition monitoring that play into automation, analytics and Internet of Things (IoT) investment themes – and traffic and data services.

In the financial year to 31 July 2020 the rail technology and services division generated revenue of £25.6 million while the traffic data services achieved £22.4 million.

The rail side is by far more profitable. Operating profit margins were 36% versus 5.8% from the traffic arm last year, the latter being significantly harder hit by lockdowns, work from home and other Covid impacts. Average traffic and data margins are still barely a third of the rail side (about 11% to 12%).

Aiming for mid-teens rail technology growth in future, you can see how profits down the line could grow much faster as this part of the business becomes dominant. Tracsis is aiming for double-digit organic growth and this will be topped up by more acquisitions in the future.

Bigger deals will be considered, albeit vetted as carefully and with the same focus on innovation and technology, but potentially loosening stock liquidity, a minor investor bugbear in the past.

This could also accelerate recurring revenues and international expansion, something that hasn’t come as quickly as hoped. Last year just 13% of revenue came from outside the UK, mostly from Europe.

Broker FinnCap is already factoring in faster growth and fatter profits, with this year’s estimated £9.3 million adjusted operating profit expected to hit £12.4 million in the following year. That’s 33% growth and something which should drive the shares much higher.

‹ Previous2020-12-23Next ›