http://michae1mouse.blogspot.co.uk/2011/09/your-m8-my-m8-trackm8.html
http://michae1mouse.blogspot.co.uk/2012/10/trakm8-revving-up.html
Trakm8 issued a trading statement on Thursday which appears to confirm my faith in this company in both its short and long term prospects.
In their interim report in November, the company announced that the company had "decided to embark on a period of significant expansion".
They justified this as follows:-
"The past few years have seen a major transition for the business; we have built a strong core of customers whilst growing service recurring revenues, based on a market leading portfolio of telematics products and solutions. This in turn has led to a turnaround in financial performance, with strong profitability following a period of trading losses, and a strong balance sheet with substantial cash resources available."
They went on to say:-
"This fundamental improvement in the Group's position has provided the Board with the confidence and scope to consider a range of strategic options. At the same time the tough economic climate means that our strong financial position and business model
gives us a competitive advantage compared to weaker competitors"However, expansion involved increasing the headcount by 15 new employees with an estimated increase in overheads of £400,000 per annum.
Whilst excited by their future prospects, I did anticipate that for the year ended 31 March 2013, Trakm8 might record a small loss associated with the costs of building the team further.
The trading statement released this week is far better than I could have anticipated, and now confirms my belief that this company has multi-bagger potential in the short and long term.
Although revenues for the full year to March will be slightly lower than last year (£5.2m), the company has in fact remained profitable, despite the increased overhead. Margins have further improved (75% last year) and recurring revenues have also increased. Significantly, despite a slight dip in revenues and increased overhead, cash balances have improved again to £1.4m. (£1m last year, £1.1m at the half year).
Some major contracts due to start this year have fallen into next year, and as testament to their products, they have secured an agreement with a competitor (Visilink) whereby :-
"Trakm8 is delighted to offer Visilink customers
the opportunity to transfer to Trakm8's solutions, allowing us to broaden our footprint in the UK. We will do everything possible to ensure a smooth transition and a productive future cooperation with customers that transition."John Watkins the CEO goes on to say:-
"Having established a strong financial base we are embarking on a period of significant expansion. The Board is confident that this investment strategy will deliver increased revenues and shareholder value in the near term."
Clearly they are currently delivering on their promises and more.
Directors have a lot of 'skin in the game' and appear very confident, I continue to share their confidence.
When the results are released, the shares will look expensive on a p/e basis. This will be very misleading. All eyes should be on next year and subsequent years.
Just to illustrate, as the additional employees begin to make an impact and increase revenues, the impact on the bottom line will be game changing. Despite the shares having risen a healthy 31% since the trading statement, the market cap. is still just £4.4m.
I expect revenues to March 2013 to be around the £5m mark given the interim figure, but let's consider next year. If they can achieve somewhere near the £6m mark then with healthy margins of around (let's say) 78% and increased overheads taking admin expenses to £3.7m, that would give a profit of around £1m or EPS of 5.3p. Applying a modest p/e ratio of 12 gives a share price of 63p.
Over forthcoming years if they can increase revenues towards £10m then EPS leaps to a massive 22p. Again applying a modest p/e of 12 gives a share price of £2.64. In other words, any revenue increase of £6m upwards has a substantial impact on the bottom line. This is a company with market leading products which is profitable, generating cash and has a very high percentage of recurring revenues. The balance sheet is very strong and improving rapidly.
As I have mentioned before, the shares are illiquid, but as the market cap. improves so will liquidity.
This remains a long term hold for me, and whilst I always remain cautious, I am a excited for the future.
As ever, no advice is intended or given, and the blog is purely an account of my investing thoughts and experiences.
No comments:
Post a Comment