Small Cap Value Report (24 Jul 2014) - TRCS, SSY, VTU, CFYN, WHI

Thursday, Jul 24 2014 by

Good morning!

I'm heading into London today for a lunch with the Directors of SCISYS (LON:SSY), so will have to rattle through this morning's announcements more quickly than usual.

Tracsis (LON:TRCS)

I don't normally comment on contract win type announcements, as they usually contain insufficient information to determine whether they are financially material or not. However, this one looks interesting - details on the extension to a further six sites of a North American pilot of Tracsis's remote condition monitoring product & software. Tracsis commented;

The extension of this pilot to a further six sites is a very positive endorsement of the Tracsis offering and a logical next step as our client gains confidence in the technology and the benefits it provides.  We hope that this will pave the way for further successes within the US as our footprint into this territory grows.

It doesn't take a genius to work out that if this product becomes widely adopted in the USA, then that would be very good for Tracsis and its shareholders. The shares are never cheap, but the company does seem to have interesting potential. The Stockopedia graphics below starkly show how the valuation is high, but the quality is also high! Expansion into a new, and huge market such as the USA could be a game changer though, hence in my view it looks potentially interesting, even at this rather high current valuation.




I like the valuation of this software group. It's a good quality business, at bargain price in my view. Indeed it comes up on the Stockopedia "neglected companies" screen, which has some interesting shares in it. I'll bookmark this screen, as there are some good results from it, both in terms of companies that I already know are good & cheap, and also because it has been a strongly performing screen over the last two years.

As mentioned above, I'm meeting the Directors for lunch today, so if you have any good & concise questions that you'd like me to ask, then please let me know asap in the comments below, or Tweet me @paulypilot .

A trading update today says;

As anticipated in the Company's AGM statement at the end of May, the first half of 2014 has finished positively and the Directors…

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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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SCISYS group PLC is a United Kingdom-based company, which is engaged in developing information technology (IT) services. The Company develops application solutions and products, and provides supporting services. The Company provides IT services to corporations and public sector organizations through four divisions: Space; Enterprise Solutions & Defence (ESD); Media & Broadcast (M&B) and ANNOVA Systems. The Space division provides various aspects of a space system, from fundamental research and onboard software solutions, to supplying ground segment infrastructure and services. The ESD division provides software solutions across various markets, including defense, security, marine, public sector and commercial. The M&B division is a supplier of digital radio production, archiving, asset-management and playout solutions. The Annova systems develops a portal for ARDAktuell based on the ground-breaking, product OpenMedia Newsboard. more »

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Vertu Motors plc is an automotive retailer in the United Kingdom. The principal activity of the Company is the sale of new cars, motorcycles, and commercial vehicles and used vehicles, together with related aftersales services. The Company is engaged in the provision of management services to all subsidiary statutory entities. The Company operates a chain of franchised motor dealerships offering sale, servicing, parts and bodyshop facilities for new and used car and commercial vehicles. The Company also operates various franchise dealerships, such as Volvo, Volkswagen, Land Rover, Audi, Mercedes-Benz and Jaguar, and operates Honda dealerships in the United Kingdom. The Company operates approximately 125 franchised and over three non-franchised operations across England and Scotland. The Company's subsidiaries include Bristol Street First Investments Limited, Bristol Street Fourth Investments Limited, Vertu Motors (VMC) Limited and Grantham Motor Company Limited. more »

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

14 Comments on this Article show/hide all

thekingsgambit 24th Jul '14 1 of 14

Hi Paul,

Ramp alert!

My fag packet analysis for Tracsis (LON:TRCS). 40,000 devices needed in UK for network rail (my guess based on information published on Network rail website). Cost= £4,000 per device. High margins circa 40%. £64 million PTP over the course of the roll-out? What number can we put on the number of devices needed in the US? I have no access to any figues but I'm guessing we are looking at multiples of the number network rail need. I think all aquisition news and other parts of the TRCS business is secondary and MPEC is the growth engine. It now becomes a question of when does the roll-out start and how quickly do they want to implement.

Watch this space.

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Jardine 24th Jul '14 2 of 14


I met with the directors of SCISYS (LON:SSY) last month at one of their regional lunches. An excellent strategy to engage with PI's based outside London by the way!

I raised the matter of the dividend but got the distinct impression that they decided the level based on what they thought the yield should be (around 2% should be ok!) rather than what they could afford based on cash in the bank. They said "the City doesn't like it if you have to cut the dividend", but I pointed out they could always pay a special dividend now and again.

I also got the feeling that their core business is declining (or they are just not very good at selling) so every now and again they buy a business just to keep the top line level. That's why they want to keep hold of their cash.

They do have a clear strategy to improve margins though but I was left with the impression they needed to place more emphasis on sales and marketing to achieve growth in the business, I could be wrong on this though as margin improvement could achieve the same result on the bottom line. They seemed to be very concerned that it was their public sector customer base that put investors off.

Would be good to hear your views having met them.


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lucien2k 24th Jul '14 3 of 14

RE: Scisys

I looked at them a few months ago, but didn't dig too deeply because I felt I couldn't clearly identify what they do from their website.

From looking again I get the impression that they are aiming to be an Accenture type company that provides consultants and develops infrastructure for other companies. They list so many industries on their site that it all feels a bit unfocused given the size of the company.

Its not necessarily a criticism of what they do, they are profitable, growing and paying a small dividend. However for me as an investor, it put me off because I couldn't get that clarity from looking at their site.

They seem to have a radio product call dira that is mentioned a lot in their company report, but the details about it are hidden pretty deep on their site too. Maybe it should have its own product site and better visibility if its a big deal for them.

I'd be interested to hear your thoughts after meeting them. The more I read, the more I get the impression that they are good engineers but poor sales people. That's a much more attractive proposition than bad engineers with good sales people.

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Jardine 24th Jul '14 4 of 14

In reply to post #84937

Lucien, Interesting that you got the same impression about SCISYS (LON:SSY) lack of emphasis on sales from your desk research as I did from meeting them. I actually asked the question who on the Board had skills in sales and marketing and the CEO was quick to point out that he did, but the point I was trying to make was that nobody else had. I'm not sure if this registered with them though.


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TheMarinersWife 24th Jul '14 5 of 14

Paul - the link to the stats for Tracsis looks like it has come out as Trinity Capital

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Boltonreddave 24th Jul '14 6 of 14

I have been looking at your spreadsheet on Paul's Valur Picks and see that you must use a screen scrape off Google Finance for the prices. Whrn i try it you can only include the table which includes close, high, low etc. etc. Do you add this data to another tab in spreadsheet and then just cross reference it on your main sheet or do you do something else?


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stocktrawler 24th Jul '14 7 of 14

I picked up some Tracsis this morning after reading about these developments in the US. Tho broker forecasts in Stockopedia don't take into account the last trading update where management stated that they expected to significantly exceed forecasts. This could drop the forward PE below 20. With this latest news and the recent retracement in the SP it seemed a good entry point.

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Paul Scott 24th Jul '14 8 of 14

In reply to post #84942

Hi Dave,

My spreadsheet on Google Drive pulls the latest share prices from GoogleFinance using this formula: =googlefinance(C6,"price")
(where C6 is the cell where the company ticker is input by me, in the format: "LON:TRCS"

So you can then copy the formula down in a column, and it will look up the ticker in column C, and the result will be the live price of that share.



Regards, Paul.

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Paul Scott 24th Jul '14 9 of 14

In reply to post #84941

Thanks, I've corrected the ticker.

Regards, Paul.

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John McArthur 27th Oct '14 10 of 14

As CEO of Tracsis we are always happy to field any questions shareholders have so feel free to do so directly via the company, via our PR company, or on this forum which is the only one I care to follow.

With regards to Stockopedia's metrics on Tracsis, I can't fault the approach used but readers should note we have a stated approach of growth that includes acquisition and forecast numbers obviously don't include any aspect of this.

This is an important distinction to make as the 'Growth & Value' assessment on this forum (currently all red/orange for Tracsis) will always be markedly different from the 'Quality' assessment (all Green). The reason for this is simple, the former only looks at organic growth (from forecasts) whereas the latter shows how we are actually performing and includes both organic and M&A.

Hope this makes sense. Best regards.

John McArthur
CEO, Tracsis Plc

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Ramridge 27th Oct '14 11 of 14

In reply to post #87230

Hi John.
Big respect to a CEO willing to converse directly with the little investors.
Putting aside the div yield data, all others in the 'growth & value' table are derived from the forecast eps.
In the main section of the StockReport, the eps is shown to grow from 9.15p (2013) to 15p forecast for 2014. That's 64% growth. From you post do I take it that the earnings organic growth is expected to be 64% and acquisitions to add to that?

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John McArthur 27th Oct '14 12 of 14

Hi Ramridge,

There is no simple way to answer your question I'm afraid but I'll give it a go.

It all depends on the timeliness of the forecast information. At the start of any FY the forecasts only include the revenue streams we currently have so EPS never includes additional profit from acquisitions made during the year until they take place. However, once we do a deal the brokers will eventually get around to publishing an 'update' which takes into account the acquired trading and what this will add in the year.

Therefore, with regards to M&A the forecast numbers lag behind reality until such time that mgt/brokers update the market.

Unfortunately I don't have full access to Stockopedia so can't see the data relating to Tracsis and am loathe to be drawn on specific numbers and % as it depends who's forecasts one uses (there is research in the market from house broker WH Ireland but also Charles Stanley and I'm not sure where/how Stockopedia is sourcing data or how old it is). Also, a lot of the brokerages use EPS definitions which vary from the statutory calculation used in the annual report which never helps!


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Ramridge 27th Oct '14 13 of 14

In reply to post #87233

Excellent. Many thanks.

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John McArthur 27th Oct '14 14 of 14

Phew - glad that made sense!

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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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