General election hits sales at Tracsis

Last financial year was “disappointing” for Tracsis (TRCS). The railway technology company was hit hard by the UK general election, which caused government spending to stall in the summer months. Revenue dipped by 1 per cent in the period, while adjusted Ebitda dropped by a fifth to £12.8mn. Statutory profit before tax – which includes sizable depreciation and amortisation charges, plus £3mn of one-off restructuring costs – was just £1mn.

The question is whether Tracsis will bounce back under a new Labour government. Trading is picking up again, which is a good sign, and the group remains debt free, with almost £20mn-worth of cash on its balance sheet.

However, there is still “wide variability” in customer activity in the UK and the national insurance hike is expected to cost the group an extra £0.5mn this financial year. 

Some underlying problems also surfaced in the full-year results. Tracsis is trying hard to expand in the US, for example, but rail technology revenue fell by more than a third in the region to £5.7mn. Tracsis' management team said the group was competing with big companies for contracts, and still needed to build its reputation across the pond. 

The group has ploughed £3mn into a transformation programme, which has involved cutting jobs, improving IT systems, and scaling back its footprint. Management said this will accelerate growth and centre the portfolio around higher-margin activities.

The end market drivers are also clearly strong, and Tracsis said its rail technology “opportunity pipeline” had tripled since July 2023. 

For now, though, Great British Railways is still at a nascent stage and there is uncertainty around who exactly is responsible for making spending decisions. While we like Tracsis' long-term growth story, therefore, we sense there could be pressures in the short term. Hold.

Last IC View: Buy, 845p, 24 Apr 2024