As anticipated in last week's blog, Trakm8 released their interim results this week.
The headline figures show that revenues increased by 10% to £2.564m, combined UK and International orders received increased by 28%, and underlying annualised recurring revenues increased by 15% to GBP2.3m. The company continues to maintain profitable growth with an operating profit before exceptional costs of £87,000, gross margins increasing slightly to 75% whilst they retained strong cash balances.
The figures are very healthy and encouraging, but it is the forward looking statements that have greater significance following the "transformational acquisition of BOX Telematics Ltd completed in October 2013". In the year ended 31 December 2012, BOX recorded revenues of GBP8.4 million and profit before tax of GBP850,000.
In the forward looking statement John Watkins, Executive Chairman of Trakm8 said:
"We expect to deliver on the investments in resources over the next year and to deliver strong growth in profitability on the back of the much larger Group revenues, in line with our expectations."
Broker forecasts are for revenues of £10.9m in 2014 with EPS of 2.3p and £16.9m in 2015 with EPS of 4p. This gives forward P/E figures of 15 and 8.5 respectively. The figures don't look unreasonable , but I don't tend to pay too much attention to broker forecasts on smaller companies in the early stage of their development. Revenues and profits at this stage are very difficult to predict. With this company there are a number of other key indicators that are far more important to me in holding shares in the company for the long term.
Highlighting the significant detail from the interims:-
"Trakm8 has continued to consolidate its trading position and profitability, in addition to enhancing its robust financial position. We were very pleased to have completed the transformational acquisition of BOX Telematics just after the half year end, significantly improving our market leading position. "
"The rate at which new orders have been received during the period indicates that the expansion of our engineering and sales teams is starting to positively impact the results."
"There has been a continuing increase of 15% in the annualised recurring revenues, which are based on increased numbers of units reporting to Trakm8 servers. These revenues are the bedrock of the Group's financial future."
"Gross profit margins have continued to improve, which we anticipate to increase further once BOX Telematics is fully integrated into the Group."
It should be noted that the increase in revenues and profitability were achieved without a large order from one single customer which they had achieved in previous years. This is down to the fact that they have managed to broaden their customer base both in the UK and internationally. It's always important to me that a company does not have too heavy a reliance on one single customer. I watched a company called UBC Media (mentioned in previous blogs) for many years before buying shares in the company. Amongst the early reasons for holding off any purchase was their reliance on the BBC for the vast majority of their revenues.
"Our customer facing web based solutions are market leading........ The order pipeline has been building strongly following the appointment of a Corporate Sales Director early in 2013."
"Trakm8 has been building from the strategy announced last year to invest in more engineering and sales resources. Although, as expected, operating costs have increased at the expense of short term profitability, the new product introductions and the order pipeline is giving confidence that this investment will pay off."
Despite this investment Trakm8 continues to trade profitably.
The report regarding the early integration of BOX Telematics into the group reads very positively indeed and will be transformational for the group if they achieve the financial and strategic benefits they have outlined.
Finally,
"The Group has a much stronger pipeline of new sales opportunities than at any time in its history and has the recently enhanced engineering resource to capitalise on them."
and
"The Board believes that the investment in resources and the acquisition was timely both in terms of the improving general economic climate and the tipping point in mass market adoption of telematics that appears to have been reached. "
In conclusion, Trakm8 is a small company valued at less than £10m that could have a very big future.
I am excited about the prospects for the enlarged group which can grow significantly from a sound financial footing with high gross margins, strong cash flow and double digit growth in recurring revenues.
In other news, Angle continues to show considerable promise and is presently delivering on the timeline set out for the marketing and sales of it's Parsortix system in the diagnosis and treatment of cancer patients. This week they announced the CE Mark authorisation of its Parsortix cell separation system for use as an in vitro diagnostic device in the European Union. FDA approval should follow in due course which opens up a potential £8 billion plus market for sales of the device.
Some time ago there were rumours in the Times newspaper that Angle was a bid target. I expected that there was some substance to these rumours, and that a bid would duly follow. I still believe that because (as mentioned last week) the company is now a one product outfit with some not inconsiderable challenges to be overcome in getting the product into mass market use, a bid for the company is very much a real possibility. Of course other options are open to them, as outlined in their RNS. Overall, I am very happy to hold on tightly and see what happens in the ensuing months.
No further details from Avesco or UBC Media yet. In the meantime, I have noted that Creative Technology continue to ramp up their visibility on the website. The latest news item details their involvement in Jessie J's concerts. Certainly worth a read for shareholders:-
http://www.ct-group.com/news/ct-alive-jessie-j
As ever, no advice is intended or given.
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