I think I made out the case for discounting a placing.
However, there aren't that many profitable acquisitions to be made, and those that are out there tend to be expensive.
Buying low profit acquisitions is a model for future low profits usually. Accordingly it seems Tracsis have switched to an mixed 'investment' & acquisition model.
A company making £3m profit wants more than £20m (assuming a 7x multiple for earnings) to buy them out, so you end in the more marginally profitable areas, unless you are prepared to whack up the price, or have been lucky enough to discover a gem.
Tracsis likes an acquisition model that defers a decent back-end payment subject to results, but if a target business is decently profitable already they won't bite for that. It really only works for quite low profit or entry-level companies, such as the recent acquisition. But these represent more risk.
So, if they loose patience with their own criteria for acquiring, it is not impossible that Tracsis may convince themselves that a placing makes sense in order to be able to afford something bigger. I hope they stick to their knitting.
I think that buyers are coming up against a big squeeze on supply of shares. I am guessing that markets markers will run this up so far, and then try to shake out more buyers by making a dramatic price drop at some point, but its a hard grind to get a decent amount of shares going, without really driving up the price.
Fulfilling a decent size institutional order must be pretty hard work, if most holders are prepared to sit on their hands, given that Tracsis is in reasonable shape.
Even a decent share price wouldn't I think tempt the board to do a placing, in order to allow them go for bigger acquisition targets, whilst also put some extra shares and share liquidity into the market. £8 a share on a 10% placing would still only raise circa £18-20m by my reckoning.
So in the meantime the most effective mechanism is to drive the price up, and excite sellers.
Nice to see but usually the big rises come after announcements, and the immediate reaction to the interims was relatively muted. No high volumes or institution taking a big stake. I'm guessing somewhere there has been a tip in the press.
to get back its old high of £5.8, but there's always a bit of a sell off after a price rally, so I suspect this is mainly Market makers trying to fill buy orders, by shaking the price. But what do I know?!
Pretty hard to make short-term trading profits in Tracsis given the price spread and low liquidity.
Stockopedia has its PE ratio at about 22x future earnings, so reasonably average for a tech company, which so far has managed to avoid a formal profits warning.
I can see this heading up to £5.8, on a slow grind basis. However, unless an interesting contract arrangement is announced, or an earnings enhancing deal is mooted, suspect it will not push past £6 for a while. I would Love to be proved wrong though!
In the ideal world the Company should tell us why they have changed advisor, so that it is transparent.
As you say Hardboy, sometimes they believe there is more 'prestige' attached to a particular NOMDAD/broker. But in real terms that usually means greater exposure to bigger institutional investor reach, or perhaps there is perceived to be stronger analyst coverage.
Of course people move on in brokerages, and that may mean less personal connection/attachment to a broker. Sometimes, given the fees that are paid, Companies may not feel they get the 'love' they deserve, particularly at CEO level. Can be ego driven.
But I think the Tracsis team are fairly sensible, and level-headed (so far), so hopefully good motives are behind it.
A nice steady rise in the run up to the interims, and since then a gradual inching forward. Presumably any brokers or commentators may have upped their target price in the wake of the interims.
Of course it could just be Income hunters buying in for the HUGE interim dividend.
I'm always a bit uneasy when companies, especially AIM stocks change advisers. Often with young companies it is purely just upping the status to more respected advisers; but occasionally it's due to them getting a little too close to the family skeletons.
Once bitten and all that.
But from all the known knowns I've more than happy with the direction it's going.
No-one likes to see Director sells, and it is almost impossible if you are an executive in an acquisitive outfit to sell at reasonable time, as you have two close periods per year ( interim, and final accounts announcements) plus the financial sensitivity which prevents you around acquisitions.
But only the CEO is selling which is a bit odd, and something he has never been commented on to my knowledge (he sold a tranche about two years ago).
Will the FD be next?
Its always a bit unnerving. Looks like he's made about £500,000 on this sale. Nice bit of padding for his personal bank account.
Makes the positive trading statement as a bit of a counter-balance, more understandable.
I agree that the US market possibility for their track related software is possibly very big but management are very keen to play down the timescales around that, for understandable reasons.
The problems down the line come from acquisitions or investments that don't exceed expectations, but basically perform in line, or slightly worse than when acquired. That produces a slightly soggy bottomed sandwich (techncial term :-)) of a Company, where relatively small acquisitions drag on the business. Quite often the message is , oh one business unit slightly up on performance, and another down. That doesn't usually excite the market.
Of course a bigger acquisition bet has more risk of exploding if it stretches finances, and under performs.
I think barring some explosion in the American market Tracsis will face a dilemma, as an acquirer ( which is what it is) rather than an organic trading entity with a single market. By acquiring small, they may in effect be buying at the bottom, and be able to surf a bigger upside, but it could be that they never scale (most don't). Cross selling different services across a group of companies is actually a much longer term exercise, and less exciting than it looks theoretically on paper.
There is nothing wrong with being a steady eddie. Maybe there are too few of them. There is however, a metric which looks at return on return on capital employed (ROCE), and Tracsis currently is about 12.5% which is pretty average. In 2012 it was 26.5%, and it has been on a declining trend since, but has plateau'd for the time being. The PE is circa 20x which appears to be average for the market at the moment.
So the stats suggest Tracsis is no longer super exciting, but may depending on what view you have on the management, have the capacity to surprise?
With the current business as is you are right, but there are significant possibilities for very large growth in the overseas markets. If these pilots in North America ever turn into some serious contracts; or if the contracts they have in Sweden can grow in other European countries, again there is great potential.
If either of those start to happen it could easily be 3-4 times the size in 5 years time; and that is without tangential movement into other markets. It is not so long ago they weren't really into traffic monitoring, or remote condition based maintenance, so they may see other related areas they can sensibly move into.
I do wonder if the size of the recent Tracsis acquisitions, and the focus on 'investments' is indicative of either the acquisition market drying up, or of it being too expensive to buy bigger businesses to easily allow the management to scale up the total business.
Generally, I approve of the Tracsis cautious approach to acquiring, in terms of reasonably focused and transparent approach. However, there is no doubt as a pretty small company, it is probably going to struggle to get liquidity or much of the attention of institutions on AIM at the size it currently is.
It isn't a super growth company, but a steady eddie. I think expectations of super growth are locked into its current eps from a couple of years ago, when the American market was trailed as a big possibility. It is still possible I guess, but it is apparent that this is a longer game.
It has done a number of deals where the up front payment isn't too large, but the deferred element is significant subject to performance. The question is how realistic are these deferred expectations?
Also, if small acquisition don't scale they take up more of management time, for less reward.
So I think 2018 is going to be quite an interesting time for Tracsis, as to whether they are really a plodder or something else?
Yes Muzzle, I saw those acquisitions, and while I'd never heard of the companies, the purchase makes a lot of strategic sense and fits nicely with the rest of their business.
While you're patiently waiting for news of new contracts (as I am) I am patiently waiting for the share price to drop just a little lower - I have a limit order to buy just under £5, and though tantalisingly close, it's not triggered yet. Such are the perils of lowly traded companies: I suppose a few more sellers are needed to put shares in the market. I halved my holdings at 579, and would be happy to get those shares back now. Maybe I shouldn't be greedy for a few p, but I set my target re-entry and I'm sticking with it.
I suspect there are only two men and a whippet occasionally looking at this board, so even though the two men might know, the whippet might not, that Tracsis have made some small acquisitions.
These companies seem to be in the area of providing compensation for late/cancelled trains to travellers. This is a service which is outsourced effectively from the train companies, and is expected to grow.
So a quite a niche service.
The share price of Tracsis has come off a little bit since the mini stock market correction. I am patiently waiting to hear about the new contract that may be landed by one of the previous Tracsis acquisitions.
A bit like trains sometimes new contracts arrive later than they are scheduled!
I am trying to attend more GMs; as they can be very informative, and information can be gleaned that is not in the public domain; but as you say they do vary. For AIM stocks, I was most impressed with the SRT Marine AGM - coffee & cakes on arrival, full tour of factory and office space guided by directors, presentastions of strtategy and results, lunch and informal cjhats with directors. Excellent.
The one thing I regret about yesterday's AGM was that my interogation of the BoD apparently held up John McArthur's duaghter's birthday party!
I think quite a lot of the AIM Tiddlers like Tracsis have sparsely attended AGM's, even when they are based in London. So it it probably came as small shock to them that anyone bothered to attend.
So Kudos and thanks to you for putting in an appearance.
I get the impression that the CEO and the FD do make an earnest attempt to reach out to Private Investors. This makes sense as PI's are the ones who move the share price, as institutions usually buy in lumps and sit on them. They also get the benefit of one to one briefings through their analysts, so don't bother turning up at AGM's.
Hi Muzzletoff, I did indeed go to the AGM, and have nver been to an AGM like it. I travelled up from London, though I am doing other things in Leeds so it wasn't just for the AGM. Because of train times I arrived about 30 minutes early. Max, the CFO, came out & introduced himself, saying there was a Board Meeting going on before the AGM, so I'd have to wait in reception till they'd finished. About 13:05 I got ushered in to the Board Room (about 12 seats - obviously not expecting many attenders) and outside the BoD I was the only attendee (I still think that word should be attender, but it seemes widely used.) Each director stood, shook my hand & introduced themselves then the chairman said all AGM items had been passed by proxy votes so there wasn't any other business unless I had some questions. I'd wished I'd done more research before the meeting; but I asked enough intelligent (?) questions to keep them talking for about 30 minutes. Basically I sat at one end of the table, with the 6 directors focussing attention on me, and they let me ask and say what I wanted. At the end John walked me out and said they were very approachable, if I (or other share holders) ever had a question just drop them a line, and if I was ever in Leeds, I could just drop in.
I was particulalrly intersted to get a feel for where the business is going after their metamorphasis over recent years, from a business which got railway rolling stock in the right place at the right time, to a business with 3 distinct lines of business; and get a feel for how optimistic they are about the future.
I am reassurerd, and may buy more on the dips. They're very optimistic about the traffic monitoring and condition based maintenance strings. The railway stock management is a nice earner, so not being ignored.
On overseas expansion they are optiomistic about the future, sure they will get plenty of work; BUT not sure when. Things can move very slowly or quite quickly. Although they don't relish a Corbyn Government, they think it could be good for Tracsis as they think there would be a lot of investment in rail and road infrastructure. Driverles cars they see as a great opportunity for their traffic monitoring/management business to get involved with building infrastructures to facilitate their advent.
I think they were the main things I asked about. Once question I regret not asking was if they have any plans to upgrade to a main platform listing. Oh well I can just drop them a line!
Hope we will have some news in early 2018 regarding ongoing commercial contract discussions, between an acquired Tracsis division and their customer.
In a recorded discussion with Paul Scott back in November 2017, John McArthur explained that there was some deferred considered on the balance sheet (circa £5m) due to the two most recently acquired companies, if they hit year 2 targets.
JM said one of them had already hit the target, and the other had until November 2018, but was currently negotiating a customer contract which would ensure this would be paid out, if achieved. He seemed to think that they were not that far away from securing it, but predicting was difficult.
The average no. of shares traded over the last 3 months is 33k. (Yahoo Finance provide this figure as part of their basics of a share. I keep an eye on this for all my shares.)
Volumes often increase heading up to results as people take a punt on which way the results will send the share, and after results there can be some large trades from directors, who have been held in a closed period before the results, or as you suggest fund managers who have changed their opinion on the basis of the results.
One thing I can confirm is that this morning's large trade was not mine!
Obviously there is increased demand since the results have been released. Tracsis has always been a bit start/stop in terms of volume purchases. The headline spread is rather ridiculous, mostly I suspect because it is averagely a low volume share, and still a very modest sized business by Stock Exchange standards.
Paul Scott of Stockopedia usually does at least an annual interview of the management following results, and they hint as they do in the results to a good start to H1, and at least one promising deal which is being negotiated. I provide the link to the interview below. As ever they are pretty sensible, cautious, and probably canny (as the Scots would say). Next couple of years could be interesting?!
I haven't done an in depth analysis of the results, but it looks like most of what might be termed the original core business has declined, but that the most recent acquisitions have contributed to enabling it to beat last years results.
Its true to say the N.American opportunity originally helped give it a racy multiple of earnings, but the business generally is starting to look more steady than racy in outlook. On the America front, they have always tended to say it would be a longer game to leverage opportunity there. They have appointed a channel partner in the US to exploit opportunity, but didn't name them. Of course that means sacrificing some margin if it eventually makes sales.
A solid cash generator I guess it could surprise to the upside if certain parts of the business do well, but maybe unexciting in terms of results for an unpredictable period yet?
"As for the overseas story, yes, of course North America counts as overseas. But they won their first contract in N America in 2013 - 4 years ago, and we keep hearing how well the projects they've won over there have been going; so 4 years later a turnover of less than 1/2 a million is a little disappointing. Would have hoped things might have opened up a bit more."
Yes and we might reasonably have expected the successful North American business to have generated more. After all ; success breeds success.
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