For years a company close to me here in Oxfordshire, Transense Technology (LSE: TRT), has been developing tyre pressure monitors. These alert truck drivers when the air pressure in the vehicle's tyres falls below the manufacturer's recommended level. Sounds like a great idea.
And yet as far as I know, Transense is yet to sell one of its monitors or earn a royalty payment from a licensee. Meanwhile, tyre pressure monitors are already standard in the United States, and produced in the millions by major suppliers.
This illustrates one problem for followers of small companies in the motor industry. The problem is that there are some massive 'Tier 1' suppliers to the vehicle assemblers. Sooner or later, these big players manage to gain control any new product. That's not to say that there aren't opportunities for penny share investors, though...
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A sector with great opportunity...
One area that is very interesting is telematics. This is a fusion of 'telecommunications' and 'informatics' and involves not just the gathering of vehicle information but also its transmission to, and use by, a remote monitor.
The original purpose of telematics was to keep track on the geographical whereabouts of a vehicle. It allows fleet operators to instantly locate their vehicles and marshal them in the most efficient manner. But as with any good product, telematics has created a number of other benefits. For example, it can enable the monitoring of fuel consumption and prevent a driver from using the company van to slope off to the pub...
Telematics is an industry that has long held promise for investors, but has so far flattered to deceive. The sector has thrown up one of stock market's biggest losers of recent years - Minorplanet (LSE: MPS), which has seen its share price sink from £10 to 3.5p.
But last week two penny share companies reported results that threw renewed light upon the industry. These were Cybit Holdings (LSE: CYH) and a real tiddler that I visited in the picturesque Dorset town of Shaftesbury, Trakm8 (LSE: TRAK) .
Cybit's telematics systems are deployed on fishing vessels and offshore oil installations. Inevitably Health and Safety has entered the picture, in the guise of the Working Time Directive and Duty of Care legislation which both prevent drivers from spending excessive periods of time behind the wheel. Now governments have cottoned on to the possibilities of integrating telematics data into road pricing schemes.
Meanwhile, according to John Watkins of Trakm8, every vehicle will eventually be fitted with a telematics system. But he admits that while this could be within twenty years it could take a lot longer. For one thing he points out that every engine is different, and every fleet operator's management systems are different also. So it is not enough to simply put a standard black box under the bonnet. These have to be designed for the vehicle and then the transmitted information has to be integrated into the user's software.
It was its willingness to work constructively with E-On, rather than simply selling it an off-the-shelf system, that enabled Trakm8 to win a contract with the utility giant earlier this year.
Here's the real 'game changer' for telematics
But what will really change the game for telematics, in Watkins' view, is the ability to monitor not just the location of a vehicle but the condition of its engine. Every modern car, he explained, has a diagnostics system, which collects information from various electronic control units and uses this to control the running of the engine.
When you take your car for a service the first thing that the garage does is to plug its computer into the diagnostics socket, and pull off a report of the engine's behaviour. But this information can also be transmitted to a remote monitor allowing, for instance, a fleet manager to judge the condition of his vehicle engines, pick up faults early and plan the most efficient maintenance schedule.
Watkins should know because for the last decade he has with great success run Omitec, a Devizes company that helps car makers to devise ever smarter electronic systems. He was installed as chief executive of Trakm8 last September and is confident of steering it back to profitability.
I'm not looking to invest in this right now. You should beware the serious lack of trading liquidity in the shares of this £1.1m tiddler and the obvious possibility that it will save the £175,000 annual cost of a stock market listing and return to the private sector.
This does not seem to be an issue at Cybit. Last week it reported a 27% profit increase and said that its recurring revenues now cover 82% of its monthly overheads. It is also ready to buy competitors who have been hit by the recession. Cybit's shares trade on under five times earnings - evidence of the investors' mistrust in this sector, but perhaps also an attractive opportunity.
Telematics is a rapidly changing technology. It's a sector that will provide some outstanding penny share opportunities in the future. The company that creates the right product that gets picked by the giants of the motor industry will make some investors rich. I'm on the look out.
This article was written by Tom Bulford, and is taken from his free daily email the Penny Sleuth
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