Small Cap Value Report (8 Jan 2014) - TRCS, THAL, MTC, IGP, DOTD, IDOX, DIA

Wednesday, Jan 08 2014 by

Good morning! Tracsis (LON:TRCS) is a growth company that has been mentioned here quite a few times. It offers a range of specialised products to the rail sector, including scheduling software and remote monitoring equipment (to identify faults and wear on things like overhead gantries & points, before they fail). I have previously felt that the valuation got a bit ahead of itself last year, but it is now looking as if the company is growing nicely into the valuation.

The latest share price of 198p (market cap of £51m) represents a forward PER of 16.7 times, using Stockopedia's usual blend of forecasts, which eliminates differences in year-end dates, making all companies comparable. That's not cheap, but the market likes growth stocks, and tends to put them on higher ratings, and Tracsis has had a very good track record of growth and sensible acquisitions in recent years.

It also has a solid Balance Sheet with net cash. So I like the company, and rate management highly. I also like the way management are very accessible to shareholders, which is important for smaller Listed companies in my view.

Note the strong return on capital & equity bars on right (green is good, red is bad). Being a growth company, the dividend is small.

That said, it's still a small company, with the inherent risk of lumpiness in contracts on the hardware side of the business. Combined with quite a high valuation that makes it a little too high risk for my personal investing taste, but each to their own, and I can certainly see the attraction to more risk tolerant investors than me.

Today brings good news of a significant £2.2m order from an existing client, for remote monitoring equipment. This is an initial order in a five-year framework agreement, so that augurs well for the future. The key sentences say;


An order of this magnitude provides the Group with additional confidence in meeting current market expectations...

Given the magnitude of this order, we believe Tracsis is well placed to win further contracts of this nature both within the UK and overseas.


That sounds pretty bullish to me, so I wouldn't be surprised to see these shares take another leg up.

The good track record of Tracsis is demonstrated well by…

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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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Thalassa Holdings Ltd is a holding company. The Company is focused on providing marine geophysical services, autonomous underwater vehicle (AUV) research and development and homeland security and real estate services. Its directly owned subsidiaries in the energy services industry include GO Science Group Ltd (GO), which is an autonomous underwater vehicle research and development company with a subsidiary Autonomous Robotics Limited. more »

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Mothercare plc is a retailer for parents and young children. The principal activity of the Company is to operate as a specialist omni-channel retailer, franchisor and wholesaler of products for mothers-to-be, babies and children under the Mothercare and Early Learning Centre brands. The Company's operating segments include the UK business and the International business. The UK business segment includes the United Kingdom store and wholesale operations, catalogue and Web sales. The International business segment includes the Company's franchise and wholesale revenues outside the United Kingdom. Its clothing and footwear product includes ranges for babies, children and maternity wear; home and travel includes pushchairs, car seats, furniture, bedding, feeding and bathing equipment, and toys are mainly for babies. It operates in the United Kingdom through its stores and direct business, and across the world in over 60 countries through its international network. more »

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

25 Comments on this Article show/hide all

Fegger 8th Jan '14 6 of 25

Paul thanks for another excellent write up. And also thanks for the recommendation for the Boros10 article which I found outstanding!

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amacguk 8th Jan '14 7 of 25

Paul, any comments on PURI today?

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bsharman 8th Jan '14 8 of 25

In reply to post #80335

Hi. Would be interested to hear your thoughts on Dialight also. Thanks.

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IGC WHITE 8th Jan '14 9 of 25

I'd also like to hear more about Dialight when convenient Paul.

Many thanks for the constant stream of highly valuable and insightful comment.

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iiimurray 8th Jan '14 10 of 25

Interesting comments on Tracsis - they keep securing new rolling contracts that bodes well so can see potential growth but still have some hesitation - did buy on earlier good news update but sold when they seemed stuck around 200p - perhaps too prematurely!
Interested to know if you have had a look at IDOX results - I know you have some reservations about such software companies with high Intangibles on balance sheet but for all of lower profit, seems recnet selling overdone and outlook comments do appear to be indicating return to growth in 2014. Also, do you have a capital limit size for Small Stocks - does Dialight fall outside this range? Interested in any comments on them following recent fall in price and latest trading update, Is this an example of a growth stock where growth stops (perhaps only in short-term) and price slashed accordingly? Still seen as strong buy with covering brokers so could this be a buying opportunity? At about 640p today close to 52 week low of 619p and where high has been over 1400p.


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AlanJenkins2 8th Jan '14 11 of 25

Puzzled here - didn't think you were allowed to hold cash for long periods in a shares ISA.Anyone know a link to the rules ?

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bsharman 8th Jan '14 12 of 25

With Dialight it seems that the profit warning is related to £3million contracts which will fall into 2014 i.e. delays rather than shortfall? There is also an issue with the public sector contract delays and budget tightening is the USA. It seems to be a large fall today based on the fact that these orders will fall into 2014 rather than 2013. I cannot hit the buy button however!

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billytk 8th Jan '14 13 of 25

Hi Paul
Re: Dialight (LON:DIA) Do you have an embargo on reporting about the advise you give to Titan on buying shares as well as selling them as was the case with £VLX? I'm genuinely curious. All your reports are very well received and balanced and I look forward to reading your analysis on Dialight (LON:DIA) if you have time. Cheers

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kevanp 8th Jan '14 14 of 25

In reply to post #80351


As far as I was able to ascertain when I questioned my ISA provider several years ago, you are not "supposed" to hold cash for long, but there are no specific, quantitative rules about it, and it is left to the discretion of the manager. I guess it would be considered too draconian on the part of the government to insist that ISA holders had to suffer a loss because they were not allowed to go liquid when market forces dictated.

I've never had any problem holding cash on my ISA, though my provider, like most, disincentivizes you from holding too much cash for too long by paying virtually no interest on your cash balance.

I also seem to remember that if you did earn more than a very nominal amount of interest you would have to pay income tax on it, since it would fall outside the scope of the ISA regulations.

Ultimately then, you'd best speak to your particular provider.


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DLG12 8th Jan '14 15 of 25

Paul - excellent write up as always. I see that Stockopedia has a forward looking PE for Dialight of 15. Do you not think this is a useful consideration? Regards.

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Reynart 8th Jan '14 16 of 25

The FD of Tracsis is only in his mid 30s and is on a base salary of £80K - so I agree with Paul - not a hanging offence for him not to own some shares. Conversely though it does irritate me when you see a small cap PLC where the FD is taking out £3-400K and never invests - quite a common phenomenon!

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Paul Scott 8th Jan '14 17 of 25

In reply to post #80363

Hi DLG12,

I see that Stockopedia has a forward looking PE for Dialight of 15. Do you not think this is a useful consideration?

Care is needed here - remember that all the Stockopedia ratios are based on the previous day's closing prices. So if a stock has moved a lot in price today, then you need to manually adjust the market cap, and all other ratios.

Also if the price has moved a lot in one day, then that will nearly always be because some news has been issued which has changed the present and/or future profitability of the company. Therefore broker forecasts will need to be adjusted too.

So on major price moves, everything has to either be recalculated manually, or just wait overnight for the Stockopedia figures to be updated, and usually a few days more for revised broker forecasts to feed through.

I usually show my workings in my reports when I'm trying to manually calculate a bang up-to-date valuation of a share after some significant news.

Cheers, Paul.

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DLG12 8th Jan '14 18 of 25

Thanks Paul for the useful clarification.

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Roger Lawson 8th Jan '14 19 of 25

Paul, Don't really understand your comments on Idox. You say "not as bad as I expected" which is surely damning them with faint praise when they beat analysts forecasts handsomely. As for saying it has negative net assets, that's surely simply wrong, unless you are calculating it in a different way to normal. The figure on the balance sheet is a positive £44,686,000. Of course we could argue about the value of capitalised software development, but apart from cash and trade receivables, what other assets do you think a software company has? And have you ignored the deferred revenue from liabilities which is even less real? Without explanation to tell people it has negative net assets is going to lead them to jump to erroneous conclusions.

Website: Roliscon
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Ramridge 8th Jan '14 20 of 25

Roger. IDOX has 69m of intangibles. Take that away from the equity value of 44m gives you a company with negative net assets. Whether you should subtract all intangibles or none is a matter of opinion or judgement.

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Sully8786 8th Jan '14 21 of 25

Hiya All,

Nice little piece from Dillistone (LON:DSG) this morning FYI....

Please find a brief announcement made by Dillistone this morning in respect of their launch of the recently acquired Evolve product into the Australian market and a link to an interview with the CEO on the development - Importantly, the cost of launching and selling into this market is minimal given the existing infrastructure in place, therefore, the additional income generated will be very high margin revenue.



Company: Dave Sullivan - Talking Stocks
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AlanJenkins2 9th Jan '14 22 of 25

In reply to post #80359

Thanks,Kevan.That has cleared up some questions that I had such as how you were supposed to start a shares ISA if not with cash,and what might happen if you fell ill before having the chance to invest it.

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Roger Lawson 9th Jan '14 23 of 25

In reply to post #80380

Re IDOX, you can't value software companies as if they were manufacturing or property companies. They simply don't have any tangible assets and no trade buyer would look at the company in that way.

Website: Roliscon
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AlanJenkins2 9th Jan '14 24 of 25

Okay,Roger,I get that software companies have to be valued at some multiple of revenues,rather than tangible assets,because the intangibles really do have some run-down-value.Where the Micawber in me wakes up and raises a red flag is when those companies go cash-flow negative and start to accumulate debt. .

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DLG12 10th Jan '14 25 of 25

In reply to post #80372

Paul - just to observe that the Stockopedia fprward PE has now been adjusted to 13.9, so whilst not cheap it does seem to be at a reasonable level?

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 Are LON:TRCS's fundamentals sound as an investment? Find out More »

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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