Tracsis raises profit outlook again

Investors were jumping on the Tracsis bandwagon after the company raised profit expectations for the second time this year.

It is only two months since the software company, which helps transport companies organise their schedules and count passengers, last lifted its profits guidance, but as evidenced by its big contract win announced last week, trading is going from strength to strength.

Chief Eecutive Officer John McArthur said: "Due to continued strong activity within our core markets the group continues to trade above expectations. UK rail refranchising activity has been brisk which has bolstered demand for both our consultancy and software offerings."

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The group's condition monitoring business continues to prove popular with cost-conscious customers while the passenger analytics business is performing beyond expectations. McArthur said the out-performance could be attributed primarily "to excellent client management and a sustained sales drive into new markets."

Consensus figures for the year were £5.58m in revenue, pre-tax profit of £1.41m, and earnings per share (EPS) of 4.40p, but those figures are already being revised by the abacus rattlers at stockbrokers.

Broker WH Ireland said the group is "going like a train", with the trading update confirming "strong trading across the piste but the lions' share of this super-performance will likely be at MPEC, the condition monitoring business

acquired last year."

WH Ireland has upgraded its earnings per share forecasts by 15% this year and 14% next.

"As expected, rail refranchising activity is buoyant and this underpins demand for Software and Consultancy services. This was reinforced last week by the announcement of a multi-year licence deal with a leading train operating company which will utilise a suite of Tracsis products for its tendering work," WH Ireland's Eric Burns wrote, in a note in which the broker reiterated its "buy" recommendation while upping its price target to 81p.

The broker, which acts as Nominated Adviser to AIM-listed Tracsis and which should therefore be well-informed about its prospects, has lifted its current year profit before tax (PBT) forecast to £1.9m from its previous estimate of £1.60m. Next financial year it sees further growth in PBT to £2.0m.

As house broker, WH Ireland is not an entirely disinterested party, but its "buy" recommendation was echoed by David Lowery, an equity analyst at Faraday Research.

"With the £32bn HS2 high speed rail project in the bag, Tracsis looks incredibly well placed to profit from the undoubtedly fat consultancy fees that could be generated as a result," Lowery reckons.

"Tracsis has a very healthy cash balance of £4.7m - equal to a massive 42% of its current market value. It's unsurprising that with such a strong financial performance and solid growth prospects its directors have been buying shares in the company. Late last year, three directors snapped up shares at prices up to 65p," Lowery notes.

"With constant upgrades to profit forecasts, at 68.5p the shares are still looking very cheap," is Faraday's view.

Mind you, they are not at 68.5p any more. The news boosted the share price by 12.50p to 81.00p by midday.

NR