Small Cap Value Report (2 Dec 2016) - TRCS, IND, TUNE

Friday, Dec 02 2016 by

Good morning!

Firstly, I'm going to take circle back to 17 Nov, when results from Tracsis (LON:TRCS) came out. It's a tradition that I interview CEO John McArthur after full year results, but haven't got round to it yet.

Tracsis (LON:TRCS)

Share price: 517.5p
No. shares: 27.8m
Market cap: £143.9m

Audited results for year ended 31 Jul 2016 - the key figures look good to me, and a broker note says they're in line with expectations.

Key figures;

  • Revenues up 29% to £32.6m (fuelled mainly by acquisitions)
  • Adjusted PBT up 18% to £6.9m (note the excellent profit margin of 21.2%)
  • Diluted, adjusted EPS up 22% to 22.37p (PER of 23.1)
  • Net cash of £11.4m - however note that a fair bit of this will be needed for deferred consideration creditors of £6.1m - but I seem to recall John McArthur previously saying that these would be self-funding from cashflow generated before the payments need to be made

As a reader pointed out a fortnight ago, the profit growth has all come from acquisitions. The continuing operations adjusted EBITDA actually fell, from £6.2m to £6.0m.

Balance sheet - not as strong as it was, due to intangibles mounting up from acquisitions. Net assets are £28.7m, but take off intangibles of £26.1m, and NTAV drops to only £2.6m.

However, this is unavoidable at buy & build groups. The good thing about TRCS is that, to date, it's not used any bank debt. So if something did go wrong with trading, there's no risk of the sort of collapse that we've seen before at highly indebted buy & builds.

The number of shares in issue has not risen that much either - up from 20.2m in 2011, to 27.8m now. This is because most acquisitions have been funded from the strong cashflows of the existing businesses - a really good strategy that has worked very well to date.

Overseas order for RCM - this is the potential big excitement. After several years of testing the water, pilots, etc, a "significant" order has been received from the USA for its condition monitoring equipment, which has been a great success in the UK. Although this order is only $0.4m, it's a step in the right direction. The share price contains a premium for the potential of overseas expansion.

Acquisitions - sounds as if they are trading well. The group hasn't really put…

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Tracsis plc is a holding company. The Company is engaged in the business of software development and consultancy for the rail industry. Its segments include Rail Technology and Services, and Traffic & Data Services. The Rail Technology and Services segment includes its Software, Consultancy and Remote Condition Monitoring Technology, and also includes Ontrac Limited and Ontrac Technology Limited (together being Ontrac). The Traffic & Data Services segment includes data capture, analysis and interpretation of traffic and pedestrian data to aid with the planning, investment and ultimate operations of a transport environment and it also includes SEP Limited (SEP). It provides software products, consultancy services and delivers customized projects to solve a range of problems within the transport and traffic sector. It specializes in solving a range of data capture, reporting and resource optimization problems along with the provision of a range of associated professional services. more »

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IndigoVision Group plc is a United Kingdom-based company engaged in the design, development, manufacture and sale of networked video security systems. The Company's segments include Europe, the Middle East and Africa; North America; Latin America, and Asia Pacific. Its cameras, encoders, network video recorders and software are designed both internally and with technology partners and manufactured in Asia and Europe. The Company's end to end Internet protocol (IP) video security systems allow full motion video to be transmitted around the world, in real time, with digital quality and security, over local or other area networks, wireless links or the Internet, using market compression technology to minimize the usage of network bandwidth. Its subsidiaries include IndigoVision Limited and IndigoVision Pte Ltd, which are engaged in marketing of its products, and IndigoVision Solucoes De Seguranca Eletronica Ltda., which is engaged in product repair and warehousing, among others. more »

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Focusrite Plc is a music and audio products company supplying hardware and software products used by professional and amateur musicians. The Company is engaged in the development, manufacture and marketing of professional audio and electronic music products. It operates through three segments: Focusrite, Novation and Distribution. The Focusrite segment includes the sales of Focusrite branded products. The Novation segment includes the sales of Novation branded products. The Distribution segment includes distribution of third-party brands, including KRK speakers, Ableton, Stanton, Cakewalk and sE Electronics. The Company sells its products in approximately 160 territories and countries around the world. The Company offers Scarlett, which is an audio interface; Blocs Wave application, which is used by musicians to create their own sounds and songs on any iPhone Operating System (iOS) smartphone or tablet, and e-commerce Websites. more »

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  Is LON:TRCS fundamentally strong or weak? Find out More »

48 Comments on this Article show/hide all

GeoffMM 2nd Dec '16 29 of 48

Thanks for all your graft so enjoy your break well earned bud - chill out, enjoy some sun, long evening dinners and listen to some good music

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samholloway 2nd Dec '16 30 of 48

Just wanted to wish you a good break and thank you for all your insightful comments through this year!

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danyou 2nd Dec '16 31 of 48

Have a good break! It is the least you deserve!

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RMundy 2nd Dec '16 32 of 48

Jumping on the bandwagon to say thanks Paul. Comfortably the best daily commentary in the market and always an enjoyable read. Have a great break and let's catch up for a beer when you're back.

Website: Research Tree
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mojomogoz 2nd Dec '16 33 of 48

Thanks for your endless analysis Paul and have a hoot on holiday.

On Indigovision, its super cheap (I am assuming it has longevity, which is a risk) and super small. Shareholders will get a boost out of any big contracts (share price or special dividend) but it needs to find a product with some persistent revenue and margin. If it does its got a chance at 10 bagging...

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dawnpatrol 2nd Dec '16 34 of 48

Well done Paul, enjoy your break

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ricky65 2nd Dec '16 35 of 48

First week off in 4 years, yikes! Enjoy your rest!

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mikemorris 2nd Dec '16 36 of 48

Hi Paul.
Enjoy your well deserved rest.
Once in 4 years is not enough!
I really appreciate your analysis and company reports. In fact I don't know what I would do without them. I have tried doing my own homework on Company reports, but I'm an engineer, not an accountant.
Thank you for your very considerable efforts to keep the rest of us so well informed.
Bon voyage,

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tony akram 2nd Dec '16 37 of 48

Just wanted to wish you a good break I do not know how you manage to do all these reports - do you ever sleep !!!

I am very grateful for all your comments and help that you give me -trust me i could do with it !

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FREng 2nd Dec '16 38 of 48

In reply to post #160907


Hmmm. That's what I understand by "underwritten". Is there a non "standby basis" that would be implied if the phrase had been omitted?

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Dendyver 2nd Dec '16 39 of 48

In reply to post #160877

Any chance of MrC stepping up to the plate next week?

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MrContrarian 2nd Dec '16 40 of 48

In reply to post #160952

If I tried to fill Paul's shoes I'd look like my shoes were too big.
Waaaay too big.
I will put MrC's Smallcap Sweep on Twitter at about 8am every day as usual.
Here's a sample

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Beginner 2nd Dec '16 41 of 48

In reply to post #160955

Thank you Mr C. Never miss your posts. Make me laugh, and even made me a bit better off. Ta. (Highly recommended to all who read here!)

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james1n 2nd Dec '16 42 of 48


Have a very enjoyable week off - its phenomenally well earned with the regular reports, interviews and presentations. Great job!

All the best, James

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Michael Billingham 2nd Dec '16 43 of 48

Have a good week...we shall miss you.

Thanks for all you do.


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Paul Scott 2nd Dec '16 44 of 48

Thanks for all the super comments.

The good news is that I think we've got a brilliant analyst/writer & friend of mine lined up to cover for me next week!

Ed should be able to confirm on Monday. So it should be business as usual here!

Best wishes, Paul.

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jonthetourist 4th Dec '16 45 of 48

In reply to post #160979


Given it's the panto season, I think you just pulled a rabbit out of the hat and then exited the stage with a bang, a cloud of smoke, and tumultuous applause from the audience.

Enjoy your break!


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cig 4th Dec '16 46 of 48

Re Focusrite (LON:TUNE) a potential risk may be that one buys the next Hornby on a growth(y) rating.

Technically you can do most of what you do with discrete synths with free or cheap music software. The market won't disappear overnight, old habits die hard, but it might end up in long term decline...

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tabhair 5th Dec '16 47 of 48

In case anyone is looking for their small cap fix, Graham Neary is doing it over here -

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Richard Cockbain 5th Dec '16 48 of 48

In reply to post #160949


To be honest I'm not sure... nothing appearing on Google either. Probably it is just part and parcel of how reference to underwriting is applied i.e. it is there just in case.

I will make a guess about what a "non-stand-by" basis might mean... when a firm is so sure of success that it would be a waste to pay the underwriting fees or (at the opposite end of the scale) the proposal is so suspect that the firm could not find an underwriter willing to back the placing.

Can anyone else clarify?

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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