Trakm8 surge may be just the start

Trakm8's acquisition of BOX Telematics last year was a smart move. It helped the telematics and data provider consolidate its existing technical and software expertise with BOX's manufacturing operation. And these half-year results, the first to include a full six months of BOX, were certainly impressive and the share price is up 8%.

Pre-tax profit surged 30-fold to £717,000 on revenue up 231% to £8.5 million - Trakm8 grew by two-thirds to £4.3 million and BOX chipped in the other £4.2 million. Strip out BOX and new orders were up 53% like-for-like. And annualised recurring revenue, generated by increased numbers of units reporting to Trakm8's servers, jumped 130% to £5.3 million. It's up 17% since March.

And Trakm8 has won a string of contracts this year, most recently with Norway's SAGAsystem's network to distribute the T8 tracking units and real time driver behaviour feedback product ecoN throughout Scandinavia. Management certainly think these successes keep it on track to do the full-year numbers.

"The second half of our financial year should continue the trend of increasing revenues including service revenues, which we expect to be ahead of the first six months," said the firm. "The board is confident in meeting market expectations for the full year."

House broker finnCap expects Trakm8 to generate sales of £18 million in the year to March 2015 and to almost double adjusted pre-tax profit to £1.7 million, giving adjusted EPS of 5.7p. It's pencilled in 8p for the year after, implying EPS growth of 62% this year and 39.5% in 2016.

At 74p, Trakm8 trades on a modest 13 times forward earning, dropping to just nine for the year after. FinnCap reckons a re-rating is inevitable:

We are confident the group will deliver on the expected 5.7p adj. FD EPS in the year to March 2015, and we note other telematics businesses in the market currently trading on fwd P/E multiples approaching 20x, largely due to the high growth rates and the high quality of earnings presently found in this industry. On that basis we feel a re-rating is in order for the group, and raise our target price for Trakm8 to a multiple of at least 18x, a target of 100p.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.