Small Cap Value Report (Mon 8 July 2019) - TRAK, XAR, ATQT, FST | Graham Neary

8th Jul '19 by Graham Neary

29 comments 7930 reads

Morning folks,

The assortment of updates today looks like this:

Trakm8 Holdings (LON:TRAK) - final results (shares down 18%)
Xaar (LON:XAR) - trading statement ( shares up 5%)
ATTRAQT (LON:ATQT) - trading update
Frontier Smart Technologies (LON:FST) - statement by Science (LON:SAG) on 35p bid

Trakm8 Holdings (LON:TRAK)

Share price: 18.5p (-18%)
No. of shares: 50 million
Market cap: £9 million

Trakm8 Holdings plc (AIM: TRAK), the global telematics and data insight provider, announces its final results for the year ended 31 March 2019 (FY-2019).

I've never invested in Trakm8 Holdings (LON:TRAK) or in the "good" telematics company, Quartix Holdings (LON:QTX). But I've analysed both of them in some detail before - see my review of Trakm8's results last year, when the share price was 94p.

Trakm8 shares once enjoyed an enormous valuation, at 400p. But the reality of poor cash generation and volatile performance has squeezed the life out of the shares. It is now below our £10 million market cap requirement for coverage, so this could be the last time I look at it.

Today's results are predictably bad: everything is going the wrong way. The company is loss-making and net debt has increased to £5.6 million.

What's gone wrong?

"Sales related challenges and contract delays" - the products aren't required urgently enough by customers, in other words.

Outlook

Trakm8 is looking for a low double digit (i.e. 10%-12%) increase in revenue and "small adjusted profitability" in the current financial year.

It again says that great things are expected in the second half of the year.

FY 2020 is "more significantly second half loaded than ideal", due to the launch of the AA Smart Breakdown service and some contract wins.

Jam is always just around the corner! Investors should note that H2 last year produced no jam, despite the company's expectations.

The Chairman acknowledges that previous expectations were set too high, and promises that things will be different this time around:

Given the disappointing failure to predict the outcome…

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MrContrarian

8th Jul '19

My morning smallcap tweet:

Corero Network Security (LON:CNS), Trakm8 Holdings (LON:TRAK)

Corero Network Security (CNS) wins orders worth $1m.
Trakm8 (TRAK) FY dismal, in line with April guidance. A very un-AIM honesty (as well as blaming cutomers): "The Fleet Management sales team simply failed to win enough business." Outlook: "Revenues from new insurance contract wins expected to impact strongly [but] Given the disappointment of last year, we are being prudent with our outlook, with market expectations of a relatively modest recovery (low double digit growth) in revenues with small adjusted profitability."

dscollard

For those who read Part 1 of the IPO Study, I posted Part 2 over the weekend: link below.

IPO Analysis Part 2.“D” Listers, Frauds, Buy-Outs and Nomads.

This covers the "missing" 133 IPOs many of which had delisted or been bought out . Includes observations on the 541 total set.

timarr

Not at all a small cap but BA owner International Consolidated Airlines SA (LON:IAG) has just been slapped with a GDPR fine of £183,390,000 for a data breach. That's not even the maximum permitted. IAG are appealing, obviously.

If this is going to be a common feature from now on we probably need to factor this into valuations of companies that operate online and rely on our personal data to make money. It's a bit of a minefield, although in this case the breach seems clear enough.

https://ico.org.uk/about-the-i...

Snoo

That breach has more consequences for IAG I would think, if this is the level of fine taken.

There is a class action lawsuit ongoing, which I think they would have to settle in one way or the other.

They can afford it, of course. But for a firm with large revenues and small margins this seems a huge threat.

There is a class action lawsuit ongoing, which I think they would have to settle in one way or the other.

Yep, it's a misunderstood area of GDPR, but consequential damages are permitted. The real pain would come if the hackers lifted username and password details from the IAG site and then used them to breach other sites. At that point the costs could be multiples of the fine.

Basically companies need to stop using email addresses and static passwords to protect user data. Up until now it's been easier to ignore the problem because the costs fall on customers and banks (who have to issue new cards and deal with refunds).

JohnEustace

Have to say I'm happy to see the fine levied on International Consolidated Airlines SA (LON:IAG). Their IT systems are a ramshackle mess and something like this was always waiting to happen. They got rid of their in house team and outsourced everything for cost savings. Sometimes there are consequences for that.
They don't want to understand that they are in fact an IT business whether they like it or not. And if the only language they will listen to is money then perhaps they're listening now.

Trident

I wonder whether there is an illusion that business systems are safe from hacking. I am not trying to exclude negligence from the process of protecting Customer Data, which obviously should be taken very seriously.

However, GDPR is a a bottomless pit of nebulous obligations. As we have seen from Morrisons, someone with a criminal intent within a company can leak personal data, for retributive purposes, and still the Company gets fined.

There is no such thing as a foolproof system, so showboating fines by a regulator, where since their funding has been reduced has an active interest in showing Parliament it is doing its thing, and justifying its own existence, and supporting itself from the sins of other, I don't know is an entirely healthy process.

I remember someone on this discussion thread saying they thought that GDPR was no big issue. I honestly feel they haven't experienced the never ending process of replying to technical questionnaires, and big company lawyers trying to impose draconian liabilities onto companies in their supply chain, that have become part of the game of this process. It has became a burdensome grit in commercial life, and whilst I think aspects of it are useful, like demonstrating you have technical and organisational matters in place to prevent data breach, if someone targets you, there is still a reasonable chance they will inflict some damage on you.

Well, GDPR doesn't require that systems are foolproof. But it does require that businesses assess risks and put in place mitigation measures. The Morrisons case is to go before the Supreme Court so that's not settled yet. Even so, you have to question how an employee can copy 100,000 staff records without them knowing.

In general, any business that uses email address and a static password is a sitting target for a breach. If it happens they should get fined, it's not hard to introduce two factor authentication to block that sort of attack. If you're using state of the art authentication and have proper access control systems in place then you're mostly covered technically.

But the fines don't go to the ICO, they go to the Treasury to prevent the conflict of interest that would arise otherwise.

timarr

Chrisfarrell21

Thanks very much for this, I started reading Part 2 over the weekend, and will finish it this week. It's a really interesting analysis.

Ta

Chris

Small Cap Value Report (Mon 8 July 2019) - TRAK, XAR, ATQT, FST

Trakm8 Holdings (LON:TRAK)

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Graham Neary

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