Trakm8's turning point and what lies ahead

24th Sep '17 by AnonymousUser226237

8 comments 5794 reads

For those interested to hear more about Trakm8 Holdings (LON:TRAK), I decided to publish an article on what I think are the reasons why there is a great opportunity which is about to unravel here as the market seems to completely have it off its radar.

Overview

I'll better let the company's own description explain what it does:

Trakm8 is a UK based technology leader in fleet management and insurance telematics, optimisation and dashboard camera systems. Through IP owned technology, the Group analyses data collected by its installed base of telematics units to fine tune the algorithms that are used to produce its telematics based solutions; these score driver behaviour, monitor vehicle health and continuously improve the security and operational efficiency of both private drivers and company fleets.

So they make their money by selling the hardware devices, the data analytics that come with it in a form of monthly subscription as well as bespoke engineering solutions customized for different customers. Recurring revenues and number of devices are in my mind the 2 numbers that set a telematics provider apart from the competition.

They have some big names as customers:

Major Roadside Assistance companies: AA, Green Flag, ANWB (NL)
Insurance companies: Direct Line Group and subsidiaries, Marmalade, SmartdriverClub (AXA)
Major Fleet customers: Shell, Iceland, BT Fleet, Saint Gobain, Scottish Power, Kubota, Mecalac, Calor Gas, Bibby Distribution

Acquisitions

Trakm8 has acquired:

in 2013, black box manufacturing company BOX Telematics
in 2014, vehicle camera manufacturer DCS Systems (RoadHawk brand)
in 2015, route optimisation expert RouteMonkey
in 2016, small SME telematics company RoadSense

They own the whole Intellectual Property (IP) from the hardware (black box, camera etc) to the algorithms used throughout for analytics and optimization.

Products

Trakm8 has 2 main lines of business: Solutions and Products. Solutions account for the majority of the company's revenues while Products these days is only about standalone camera sales from their RoadHawk brand.

They have just spent a whole year in investing heavily in R&D and a new line of products that have resulted into the best telematics device in the market. This resulted in:

RoadHawk 600: The only 4G/1080p resolution camera with full telematics capabilities as well as route optimization. A full one-stop shop for everything a professional Fleet owner requires, all fully customizable with the option to switch on all or parts of the product to…

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lemonjar

26th Sep '17

Great write up, thanks for taking the time to pencil it all down, I'll be adding them to my watch list on the back of this. I can't easily check right now but wondered if any institution investors had bought into the company, as a sign perhaps trust in the management is returning...

AnonymousUser226237

Thanks lemonjar, you can find them here:

https://markets.ft.com/data/equities/tearsheet/profile?s=TRAK:LSE

Barclays, Jarvis and Hargreaves among the ones with the highest holdings.

Thanks for the link (wasn't aware of that FT page, good to know). Reading back through recent SCVRs I see both Paul and Graham mention they're long on this share, worth the note I thought.

Feels like its on the cards for this company (though going by your and recent SCVRs so all second hand!), it looks lot will come down to proof in the next set of results pudding I imagine, and does the recent move to the SaaS subscription model and international contracts and that distribution partnership start to shine through...

Howard Marx

30th Sep '17

Great write-up blondeamon

I remember watching the Trakm8 Holdings (LON:TRAK) Capital Markets Day presentation a year ago (September 2016). It was comprehensive & lasted 80 minutes. I was gob-smacked when the CFO mentioned the move from licence sales to SaaS in a very 'matter-of-fact' way as it would have minimal short-term impact, which of course it definitely does. If typical contract length is three years then the impact will be for three years ie 2016, 2017, 2018. This for me was a headwind to near term progress so I decided not to invest.

I have three questions if I may:

1. any idea what type of contract they have on the Car Genie product - do they get just a one-off hardware fee or do they also get recurring software revenues?

2. any idea why the recent September trading update contained no group financial detail (compared to the September 2016 update which contained numbers on both growth in new orders & units connected to the servers generating recurring revenue)?

3. Why in your opinion have institutional investors refused to invested in this stock? You refer above to the shareholdings of Barclays, Jarvis and Hargreaves but these would all appear to be aggregate shareholdings of private investors rather than of institutions such as Blackrock, Liontrust or Legal & General.

Capital Markets videos here: https://www.trakm8.com/investo...

Hi Howard,

thanks for your kind words. Moving to SaaS was never a choice but a necessity as the industry took that direction, overall SaaS is not bad but the first years are impacting heavily the profitability. Hopefully, it will have started to normalize now.

1) The devices sold to AA and ANWB are for the first time sold to consumers, so bit uncharted territory here for Trakm8 but they do have 29£ for Car Genie and 60 euro for ANWB Connected annual fees. They follow the exact same mode of another customer of Trakm8, SmartDriverclub. Small monthly fee, decent one-off hardware charge.

The potential here is that 20 million prospective customers have been added, in multiple countries. That's a brand new opening for Trakm8 Holdings (LON:TRAK) as they were UK-focused before, it never had access to this market before and more European launches are coming soon.

2) About the TU: I also found it weird no numbers were reported. With all the recent contracts and International expansion I do not believe they did it because there are bad news ahead. My view: The board in this company is very conservative and had a reputation for accurate guidance for years, took pride in it. My personal opinion is that John Watkins is keeping all his cards close to his chest and not letting anything out until the Half Year as he wants to announce solid numbers and facts on the anniversary of one of the company's worst half year announcements. Because he got it wrong last year for the first time he plays it safe to rebuild their reputation. We know at least that revenues on first 2 months were 10% up and for the 5 months they are still ahead of last year and positive to meet expectations.

3) Frankly I think it's too risky for them. This is a 33m market cap, illiquid company, if they try to buy any decent size they'll bring the price up 30% in a day. It'd be impossible for them to sell in a hurry as well if they needed to. The only reason funds would invest a big amount in Trakm8 is if they're Small Cap funds which I think already have small stakes. Also, it's AIM and pays no dividends. Both things fund managers rather avoid.

When the company goes back to the previous highs and a market cap of more than 200m it should consider moving in the main market. Restating its dividend would also attract funds back. But both in my view won't happen soon, the company is now focused on increasing market share, number of devices and recurring revenues.

If they manage to bring the cost-to-income ratio under control, they could have one of their best years this time around.

cig

1st Oct '17

Barclays and Jarvis may be, as some of the others down in the list more obviously are, ordinary punters with brokerage accounts whose aggregated nominee holdings show up here.

Ramridge

Hi blondeamon - Re. Trakm8 Holdings (LON:TRAK) very good write-up as others have said already.

I am looking at the chart because a chart tells you what the market thinks. In the case of TRAK the message is actually not good. There has been a consistent down trend since the profit warning early this year, and both the final results published in July and the trading update in September have really not stopped the downward drift.

I suspect the cash generation is the big issue. The final results show a negative cash flow of -£3m which is over 10% of revenues and it is largely caused by the capitalised development costs of £3.2m.

I see the company is saying in its trading update that cash generation will be in line with expectations. Do we know what the expectations are?

Personally I would wait and see the prelim reports due in November to decide if the company is really on the mend.

You're spot on Ramridge, the cash generation is key here to show this is turning around. Finncapp, the house broker, has published estimates of:

- Free Cash Flow of 0.8 for FY18 compared to -3.2 for FY17.
- Cash Flow Yield of 2.6% for FY18 compared with -10.2% last year.
- Adjusted Profit before Tax of 3m compared to 1.2m last year.

Some of the recent contracts were not signed when these numbers were published. (Calor Gas etc)

The CEO hinted at the last update of improved cash generation and as Finncapp's are the only estimates available I think that's the target. It's certainly feasible and a reasonable mid-term target as the new devices are breaking even and become profitable on the second half and onwards.

Trakm8's turning point and what lies ahead

Overview

Acquisitions

Products

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AnonymousUser226237

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