Tracsis AIM:TRCS, a leading provider of software, hardware, data analytics and services for the rail, traffic data and wider transport industries, reported final results for the year ended 31st July 2022 on the 9th November. Tracsis isn’t exactly a household name, and it is quite unlikely that many UK investors will be aware of the AIM-listed company. However, the company has an impact on many of our lives through its software, which underpins the real time operations of critical infrastructure, such as the rail network.
For the year to July, Tracsis delivered positive results, with revenue increasing by 37% to GBP68.7m driven primarily by organic revenue growth of 24%. Adjusted EBITDA increased by 9% to GBP14.2m and the company swung into a positive profit before tax (PBT) position of GBP2.6m up from a loss the prior year.
During the year, the company made GBP13.5m worth of acquisitions, with its primary acquisition being the US Rail software provider RailComm. Prudent levels of expenditure allowed the company to close out the year with GBP17.2m in cash, remaining debt free.
Niche Applications
After a number of years of product development and bolt-on acquisitions, Tracsis has grown to become a two-divisioned company with a portfolio of technology solutions for niche applications within the transportation sector. The two divisions now comprise the rail technology and services division, which houses mission critical software for railway operations, and the data, analytics, consultancy and events division, which provides both software and in-person consultancy services for transport networks. As of 2022, the rail technology and services division accounted for over 60% of operating income and remains highly prized by investors for its mission-critical nature and its high exposure to recurring revenue streams.
In 2022, solid revenue growth for Tracsis stemmed largely from a rebound in performance from its data, analytics, consultancy and events division, which exhibited 51% organic growth, as the return of large sporting, music and cultural events increased the activity for Tracsis’ traffic data and events-support solutions. During the year, performance in the rail technology division was more muted, with growth of 13% driven by the award of new contracts and the input of acquired revenue from RailComm.
Despite good growth in the data and consultancy arm, profits were held back during the year due to exceptional costs (related to acquisitions) and higher margins in the rail technology and services division, with profit-before-tax margins of 31% compared to just 13% in the data and consultancy division. PBT fell to GBP2.6m from GBP4.6m the previous year.
On track for US expansion
With over 80% of revenues derived from the UK market in 2021, Tracsis has set sights on the US to boost its growth prospects in the years to come. With one of the largest global profit pools for overland railway networks, the US is an attractive opportunity for Tracsis, and the company sees its acquisition of RailComm as a path into this new geography. Tracsis’ RailComm acquisition should provide a significant cross-selling opportunity for the company, and it should be able to utilise its existing software developments from its UK business. Below is a quote from Tracsis’ full-year report:
“RailComm has performed well since acquisition, delivering a good revenue and profit performance and winning new contracts for its core products. Implementation work continues on a number of large projects with North American customers that will support further revenue and profit growth. We are seeing good levels of interest in our Remote Condition Monitoring, Movement Planner and Crew Calling solutions that are already well established in the UK rail market.”
Profitability should remain of caution
Whilst Tracsis continues to grow both organically and through acquisitions, investors should remain cautious over Tracsis’ track record of profitability, especially when it comes to delivery of profit to the bottom line.
As readers can see from the above graph, revenue growth for Tracsis has been compelling, with revenues up 100% from 2017 to 2022. However, although adjusted EBITDA has remained stable over the period, PBT, in unadjusted terms, has exhibited continual decline to a PBT margin of 3.8% as of 2022. One might conclude that Tracsis is not a business that is exhibiting ‘operating leverage’, an important consideration for investment returns.
Summary and valuation
In summary, Tracsis is a business that has done well to exploit opportunities within the rail and transport industry and aid the ongoing shift to digital operations that these industries are undertaking. 2022 results showcase another year of growth and a continued laying of the foundation for Tracsis to become a global provider of rail network software, significantly increasing Tracsis’ addressable market outside of the UK.
However, with a fairly lofty valuation of 29x adjusted earnings per share (and 187x statutory EPS) in 2022, more evidence that Tracsis can turn a decent profit from its growing revenue base is needed.
Shares in Tracsis opened today (10th November) at 937p and has offered a year-to-date return of -4.6% with a one-year return of 0.43%. Shares have ranged between 800p and 1,100p over a 52-week period and the company’s market capitalisation is GBP278m.
