Tracsis looks at train black boxes

The Leeds-based group more than doubled annual revenues and almost trebled profits in the year to the end of July, boosted by the contribution from previous acquisitions.

Pre-tax profits of £3m compared with £1.1m in 2011, and revenues hit £8.7m versus £4.1m in 2011. Tracsis is looking for more acquisitions after amassing £7.6m of cash.

“There is a significant growth opportunity available to Tracsis both in the UK market and overseas and we will address this both organically and through acquisitions as appropriate,” said chief executive John McArthur.

Tracsis, a University of Leeds spin-out, started out with a software arm, helping rail firms optimise use of staff and trains. It has now expanded into hardware and services.

The company said its growth was driven in part by the “very significant” contribution from MPEC, a data-logging firm bought last summer. MPEC’s revenues grew from £1.1m to £4.5m.

MPEC’s technology allows companies to “model failure”, by providing real-time information on equipment – thus allowing parts to be replaced before they break.

“A simple example would be a point that moves the track,” said Mr McArthur. “These devices are pretty critical. You can have a delay or at worst a derailment. Network Rail spend a lot on maintenance, but their maintenance regime is retrospective.

“Because we record in analogue, you can watch infrastructure degrade over time.”

It is now considering expanding MPEC’s black box equipment monitoring range from trackside equipment to trains. It is piloting “condition monitoring” devices on rolling stock in Scandinavia, where it checks on the performance of parts including engines, wheels and bearings.

“Should this pilot prove successful there is a strong possibility of Tracsis entering this new market where it is already well placed to exploit given its credentials and working relationships with the majority of UK train operating companies,” said the firm.

Tracsis is also expanding into monitoring overhead electric equipment, remotely checking the tension on railway power lines. “That’s a very big potential market,” said Mr McArthur. “It’s a really big, interesting problem space for Network Rail. When these things do happen you end up having a train that cannot go anywhere.”

Tracsis is also targeting expansion abroad, where it believes there are “readily-accessible growth opportunities”. It currently earns only three per cent of its revenues overseas. In September, the group exhibited at Innotrans, the largest rail trade show in the world, in Berlin.

Finance director Max Cawthra said the group has tendered for work in Australia and New Zealand, and also sees opportunities in Northern Europe. “It will be done step by step,” he said.

The firm added while delays over the retendering of the West Coast line may hurt the timing of future franchise work, trends are favourable. “Eighty to 90 per cent of the UK franchises are up for tender over the next five years,” said Mr McArthur. “It’s going to be very busy.”

He added Tracsis has been busy looking for acquisitions, despite not completing any deals during the year.

“That cash is not going to be handed back to shareholders,” said Mr McArthur.

“The cash in the bank is there to fund new deals.

“We’ve done four deals since IPO and we want to carry on. It’s not burning a hole in our pockets.

“We’re out there as a buyer and we’ve looked at a lot of prospects – I’m guessing in excess of 30.

“We’ve not progressed or completed an acquisition for a variety of reasons – one of them is definitely valuation. Some people that have great businesses have an unrealistic idea of valuation.”

Eric Burns, analyst at house broker WH Ireland, said: “Tracsis has an enviable track record of delivering earnings-enhancing acquisitions which could be internally funded by the very substantial net cash position of £7.6m.”

Daniel Stewart analyst Sophie Blandford said: “The outlook remains strong for the company, with growth opportunities in both the UK market and overseas.”

Tracks to success

Tracsis 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 Tracsis bought data-logging firm MPEC Technology in a deal worth up to £3.4m.

MPEC supplies data-logging and remote monitoring technology to the rail industry. Its kit is used in trackside equipment ranging from level crossings to signals.

Tracsis works with companies including Virgin, Stagecoach, National Express, Arriva, Go-Ahead and First Group and has also almost 50 staff and 200 contractors.