Small Cap Value Report (Thur 21 June 2018) - TRAK/QTX, STE, LPA, DC., DUKE

Thursday, Jun 21 2018 by

Good morning!

Today we have:

In big-cap land, Dixons Carphone (LON:DC.) announced annual results too - worth a brief mention.

Trakm8 Holdings (LON:TRAK)

  • Share price: 108p (+12%)
  • No. of shares: 35.9 million
  • Market cap: £39 million

International Contract Award

It feels like an important contract for Trakm8, the telematics company.

The contract, initially for three years, provides Intelematics Australia with data, including automotive diagnostics, and a 4G self-fit on-board diagnostic ('OBD') device.  It is believed that this is the first 4G OBD device to meet the requirements of the Australian Cat M1 networks.  The demand over the three year period is expected to amount to circa 40,000 connections.

According to the full-year trading update (for the financial year ending in March), Trakm8's total connections increased to 251,000 during FY 2018. So this contract represents a 16% increase on that number.

Stockopedia user blondeamon has written an article at this link arguing that the number of connections in fleet management is what matters from a valuation and recurring revenue point of view, and he estimates that this contract represents a 57% increase on Trakm8's existing year-end fleet connections.

It looks to me as if the market is fatigued with this stock.

See how EPS rose rapidly before disappointing last year (left-hand-side).

Then see how the P/E multiple has failed to reach its previous heights (right-hand-side).


And yet the earnings momentum has looked pretty good. EPS forecasts have been firming:


If I was going to put my sceptical hat on, I would say that the contract announced today is only for three years, and we aren't given any financial numbers to base our investment decision on. Perhaps that would be commercially sensitive?

I think I'll refrain from saying much more until we get the full-year results. These are set to be released on July 2.

One thing I will say is that I've been impressed by the quality of performance…

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All my own views. I am not regulated by the FSA. No advice.

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Trakm8 Holdings PLC is a Big Data company. The Company, through its subsidiaries, manufactures, distributes and sells telematics devices and services. The Company focusses on owning the intellectual property that it uses in its products and solutions. It supplies its customers in the fleet management and insurance sectors across the United Kingdom. In addition, the Company provides hardware devices that can be integrated into third party telematics or Internet of Things (loT) solutions. It offers Configuration Manager, Product Datasheets, Radio Frequency Identification, Telematics Devices, Vehicle Connectivity and Accessories, among others. Its portfolio of solutions includes Trakm8 ecoN, Trakm8 Tacho, Trakm8 Secure, Trakm8 Logistics and Trakm8 Insure. Its portfolio offers telematics solutions, including dashboard cameras that enable customers to record driving incidents and mitigate the risk from crash to cash accidents. It provides bespoke solutions and engineering support services. more »

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Quartix Holdings plc is a United Kingdom-based supplier of vehicle tracking systems and services. The Company operates in designing, development and marketing of vehicle tracking devices and the provision of related data services segment. The Company offers subscription-based vehicle tracking systems, software and services in the United Kingdom. Its vehicle tracking systems incorporate instrumentation to identify and transmit location, speed and acceleration data to the Company on a real-time basis. Its vehicle tracking software system provides business critical reporting, and analysis of vehicle and driver data, including timesheets and other customer Key Performance Indicator (KPIs) to customers via any Internet-enabled device. The Company has an overseas branch in France and an overseas subsidiary in the United States. The Company's subsidiaries include Quartix Limited and Quartix Inc, which are engaged in the business of vehicle tracking. more »

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Stewart & Wight Plc is a United Kingdom-based company. The Company is engaged in property investment.

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

19 Comments on this Article show/hide all

rmillaree 21st Jun '18 1 of 19

Trakm8 Holdings (LON:TRAK)

nice contract win for Trakm8 this morning I have been very underwhelmed by results since buying shares a while back, as has the market with the share price doing worse than going nowhere.
Hey Ho perhaps they have now reached the point where future updates will be ahead of my measly expectations.

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MrContrarian 21st Jun '18 2 of 19

My morning smallcap tweet:

Physiomics (LON:PYC), Shearwater (LON:SWG), Trakm8 Holdings (LON:TRAK)

Physiomics (PYC) guides FY rev over £495k and loss materially reduced compared to current market expectations.
Shearwater Group (SWG) guides FY results at the upper end of the Board's expectations.
Trakm8 (TRAK) wins Australian telematics contract. Expects 40,000 connections over the 3 years.

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gus 1065 21st Jun '18 3 of 19

Half year update from small/micro cap LED lighting specialist LPA (LON:LPA) this morning.

Decent enough historic results although the prospects comments are typically Delphic. Upbeat and downbeat at the same time - pick the bones out of this one ....


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blondeamon 21st Jun '18 4 of 19

Biggest contract win for Trakm8 Holdings (LON:TRAK) ever. Covered it with my article here:

Please cover if you can Graham.

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Fishcake 21st Jun '18 5 of 19

LPA (LON:LPA) - Delphic doesn't really cover it and market hates it. This blog is excellent as a historical document, so I looked back at what Paul had to say earlier this year - "Suggestion - perhaps the company could find someone with more mental clarity to write the RNSs in future?". Made me laugh on an otherwise bad day!

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Crusty 21st Jun '18 6 of 19

LPA (LON:LPA) - The point is surely that they simply don’t know what the future holds, but like politicians evade the uncomfortable truth with verbiage.

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Graham Neary 21st Jun '18 7 of 19

In reply to post #376959

Thanks for the suggestion, and for doing your own detailed write-up. I'm still a bit sceptical/fatigued over Trakm8 but I'm trying to stay objective on it. Let's hope for some reasons for positivity at their full-year results!! Cheers. G

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Jardine 21st Jun '18 8 of 19

As things are a little quiet here today I hope readers will not object to my asking a general question.

For what reasons might a company decide to appoint joint brokers, particularly when the original broker is an established and well regarded firm? I recall a few months ago Paul suggested this might be a precursor to a fund raising but might there be other signals this news gives, and if so how do you interpret this type of news?

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allery 21st Jun '18 9 of 19

Problem with TRAK in recent years is 1) lack of cash generation (no real profits) & 2) capitalisation of material intangibles (dev costs) @ up to £2m/ order to show an apparent pre tax profit.
Y/e 31.3.17 dev cost capitalised £3,241k.
Maybe this new OZ contract will allow w/o of much of past so called "dev" costs (salaries, etc ?) & therefore finally allow a statement of real pre tax profit in due course. allery

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gsbmba99 21st Jun '18 10 of 19

It's been a while since I last looked at Trakm8 Holdings (LON:TRAK) and Quartix Holdings (LON:QTX) but I seem to recall concluding that a significant driver of the valuation differential was probably driven by the accounting policies. From memory, Quartix policies were way more conservative despite operating in a similar industry.

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Graham Neary 21st Jun '18 11 of 19

In reply to post #377049

Hi Jardine, I'm sure nobody minds you asking a general question... I would instinctively think "fundraising" when a joint broker is hired, but any corporate activity could be involved. M&A of all types.

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rhomboid1 21st Jun '18 12 of 19

In reply to post #377049

It can quite often be to tap into a different institutional client base where an additional broker is particularly well followed in say the US or Europe , whereas the incumbent might be more U.K. oriented...and that in itself is often indicative of a company with ambitions that might only be fulfilled with a cash raise . Two of my holdings Hurricane Energy (LON:HUR) (fundraise was messy)IQE (LON:IQE) (fundraise was executed perfectly) did this recently.

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iain1234 21st Jun '18 13 of 19

Great write-ups today Graham, thanks!

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Lawman 21st Jun '18 14 of 19

A very good article today. Why? Not because I am interested in the companies mentioned, but because it illustrates the importance of standing back and looking at the company in the context of its market.

Good education.

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fwyburd 21st Jun '18 15 of 19

Graham, thank you for squeezing in Duke Royalty (LON:DUKE), I really appreciate it.

I advised some bankers a while ago who had a similar business model and I found it highly appealing. The benefits to business owners is that the loans are long-term, on stable terms and without dilution or other potentially predatory calls on their strategic assets. The downside is it comes at a higher cost but if Duke are managing to find customers for this service, it shows there is a market for their service

Personally, I intend to invest when I can achieve a lower entry price.
Thanks again

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cig 21st Jun '18 16 of 19

In reply to post #377129

Well as a company there’s dilution of your future revenues, and presumably covenants preventing any business restructuring that would negatively affect revenue... It looks a bit strange that their portfolio companies took these deals at these prices when conventional solutions, if the companies are as healthy as described, should be considerably cheaper.

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gsbmba99 21st Jun '18 17 of 19

Duke Royalty (LON:DUKE) presented at the Shares Magazine day long event in January. I don't know why I came away with this impression and I didn't get the chance to clarify but it didn't sound entirely like the rates quoted were interest rates. He seemed to be careful not to use that term. It sounded if it was the combination of interest rate and some amount of loan amortisation.

I also seem to recall that the CEO and another exec pocketed "finders fees" of 8% of the capital deployed via new shares issued to companies of which they are the owners. Not sure whether that's temporary to minimise costs while they get going or whether that's a permanent feature.

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DJCP 22nd Jun '18 18 of 19

Not sure if any readers come back to these earlier SCVRs, but I've been looking at Duke Royalty (LON:DUKE) - Not a company/sector I'd usually consider, but my interest (or should that be, Royalty), has been stirred.

If I understand correctly (and only as an example), they achieve 8 'Partners' and deploy £10m to each at 12.5% initial annual yield, they could self-fund (excluding costs, salaries, tax etc.) the 9th Partner the following year ... and this will be ongoing (and increasing year-on-year) - compound stuff :^).

Getting £1.25m for 25 years (£31.25m total return) on a £10m 'investment', seems wonderful, but their website states :
Variable payment structure - distributions fluctuate with your revenue, no repayment of principal at end of life of royalty, term is extended over many number of years.

So, is the £10m principal ever repaid ?

From a very simplistic viewpoint, they seem to be doing similar to Volvere (LON:VLE) but instead of controlling, they're hands-off, but still reaping the rewards as their investees prosper. Us investors are paying for their management & expertise in finding these companies, and as such Duke Royalty (LON:DUKE) / Volvere (LON:VLE) could be classed as top-level (higher-level?) management - I hope I've made sense there ! lol

May I ask Francis (fwyburd) why he thinks there will be a lower entry price ?

I'll do some more DYOR over the weekend and see what I'm missing ! But initial thoughts are that although I can't see Duke Royalty (LON:DUKE) as a multi-bagger, there should be a steady, and rising income stream.

p.s Does anyone know why replies now show up as (This is for Graham's reply in message 11) :
In reply to post #377049

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

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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