Tracsis looking to cash in on rail sector activity

The Leeds-based group, which develops services for the transport industry, yesterday reported a year of strong sales and profits growth despite a hiatus in rail re-franchising.

Tracsis said while its expects the economic gloom to continue, it will grow through acquisition and developing its suite of products for the transport industry.

The company’s products allow transport operators to computerise staff and crew scheduling through “smart planning”. Its MPEC subsidiary, bought in June, allows remote monitoring of trackside equipment, reducing cost of maintenance for operators.

It also provides consultancy services for customers including Virgin, FirstGroup, Go-Ahead, Serco and DB Regio/Arriva.

“We hit budgets across all operating segments and MPEC contributed a fair chunk,” said chief executive John McArthur.

“We’re definitely a more rounded business. We’re doing rail and bus and we’re not just in UK rail.

“I wouldn’t say we’re counter cyclical but in a recession our stuff becomes more relevant because it’s all to do with saving money.”

Tracsis reported profits before tax of £1.1m in the year to the end of July compared with £0.6m profits a year earlier. Revenues surged to £4.1m from £2.6m a year earlier.

MPEC contributed £1.1m in sales during just two months of ownership. Without MPEC, core organic growth was 14 per cent, in line with the company’s budget.

Mr McArthur said while he is “cautious about the challenging economic climate”, he is excited about the prospects for the company.

Tracsis, which was spun out of the University of Leeds, saw some projects being deferred or stalled during the year but is hopeful of a pick-up in activity.

“We believe there is evidence the rail industry is gearing up for a high level of re-franchising activity,” it said. “We expect this activity to take place from December 2011 and it could continue for several years to come.”

Mr McArthur added: “We tend to make a lot of money from the franchise renewals. Those bottlenecks have been removed.” He expects about six UK rail franchises to be re-tendered over the next three years.

Tracsis is also branching out abroad, and has seen increasing demand from Northern Europe, Australia and New Zealand. Sales abroad now comprise about 10-15 per cent of revenues.

“Some of the largest opportunities we’ve got are overseas,” he said. “Europe is the big market for rail, and potentially Australia, New Zealand and the Far East. In due course we will go into China but not in the next 12 months.”

The company ended the year with cash of £4.7m, up from £2.5m a year earlier, in part thanks to a £2m share placing in May.

Each of its divisions has been cash-generative, said Mr McArthur, and its balance sheet gives considerable firepower for more acquisitions. “We don’t need £5m of working capital.”

He said while MPEC was a “slight diversification” into hardware, it gives the firm confidence to consider acquisitions away from the pure software field.

“Anything we feel we understand and would hang under the transport umbrella we will have a look at.”

It is looking at 30-40 acquisitions targets, but favours bigger deals. “We are raising our sights,” he said. “It’s the same hassle, time and cost to acquire a half a million pound business as it is to acquire a £3m business.”

Targets must be well-run, well-managed and profitable, he added.

Shares in the company firmed 2.5p to 57.5p, a 4.6 per cent gain.

Eric Burns, analyst at house broker WH Ireland, said: “The current year should benefit not only from a full year’s contribution from MPEC but also an increase in consultancy business which will likely benefit from an increase in rail re-franchising activity. The shares continue to be undervalued against our peer group whilst the £4.7m net cash position de-risks the investment somewhat.”

Tracsis was a winner at the Yorkshire Post’s Excellence in Business Awards.

On right track to growth

Tracsis has grown steadily since it was spun out of the University of Leeds’ School of Computing in 2004.

It raised £2m three years later when it launched on the Alternative Investment Market.

In August 2008 it bought Loughborough consulting firm RWA Rail.

In July 2009 Tracsis pounced on rail services company Peeping to expand its reach across the transport sector.

In December 2009 it bought Safety Information Systems (SIS), a company that provides railway chiefs with data that helps to pinpoint potential troublespots.

In June 2011 it paid up to £3.4m for MPEC Technology, adding remote trackside data-logging technology, its fourth acquisition in four years.