Tracsis (LON: TRCS) half year results

There may be further delays to shareholder value recovery

Rail technology company Tracsis released its half year results to 31 January 2025 this morning and I own the stock in my trading portfolio.

Pretty much everything is going wrong for Tracsis right now: the trade war is causing reticence on the part of the group’s potential US railroad customers; the transition to Network Rail's Control Period 7 led to a 57% reduction in remote conditioning hardware revenue in H1 25 representing a £1 million hit to EBITDA; and the proposed re-nationalisation of train operators is causing procurement delays for 28% of its customer base.

source: Tracsis HY25 investor presentation

It’s hard to imagine a more challenging trading environment and yet the company is still forecasting EBITDA of between £12.5 million and £13.5 million this year. This represents between 78% and 84% of Tracsis’ record EBITDA performance posted in 2023.

source: Tracsis 2024 Annual Report

I think that such resilience is owed to the fact that many of Tracsis’ services are what are described as “mission critical” in its 2024 annual report. For example, Tracsis provides dispatch systems which are used to centrally control train traffic and are core to the safe and efficient running of a rail network. The integral nature of such solutions is what enabled Tracsis to generate £12 million in high margin repeat revenues during the half, a high single digits increase in percentage terms versus last year despite the aforementioned headwinds.

In addition, the Data, Analytics, Consultancy & Events division provides diversification to the group, albeit at lower margins (this division typically contributes about 25% of group EBITDA).

source: Tracsis 2024 Annual Report

But even this smaller part of the business was not spared during the first half. Its road traffic survey subsidiary suffered a four month pause in orders from a key customer due to a cyber attack, and high cost inflation impacted divisional profitability.

According to management, inflation caused a reduction in gross margins due to “input cost increases not fully mitigated through pricing in the period, in part due to the timing of when work is contracted”. They go on to say “we have taken actions to address this and deliver increased profitability”, although I do wonder why such actions were not taken before now.

Perhaps this can be explained by the complexity of Tracsis’ operations. It is a sub £100 million market cap business with operations in the UK and the US and two distinct business segments serving different customer bases. While diversification can improve resilience, it can also drag on growth where clear synergies are not present.

I agree with management’s emphasis on growing recurring technology derived revenues, and exiting low margin transport consultancy work during the half was a welcome move. But I still feel that Tracsis lacks clear direction and would like to see more effort made to simplify the group.

For example, I question the 2022 acquisition of US based RailComm for $11.5 million. At the time, RailComm had just posted $6 million in revenue and generated a pre-tax loss of $3 million for 2021. Tracsis CEO Chris Barnes made the following comments regarding the deal:

"This is an important strategic acquisition for Tracsis, providing a platform onto which we can start to internationally expand the Tracsis Group and its rail product portfolio via direct access to the significant and growing North American rail technology market."

In the first half of this year Tracsis’ total US revenue was £2.3 million following £4.4 million for the whole of last year, so I think it is fair to say that growth has fallen short of expectations. North American costs were reduced in the first half of 2025 which when combined with recent geopolitical events leads me to think that the US business is unlikely to improve much soon.

A recent contract award for a PAYG ticketing system covering urban areas across Network Rail prompted me to buy shares in Tracsis earlier this year. The value of this contract remains unclear and will depend on consumer uptake, but my hunch is that it will become a significant earner post deployment which begins in 2026.

Tracsis has a market cap of £93 million at the time of writing. For that, you are getting £22 million in cash and £13 million of what might prove to be temporarily suppressed EBITDA based on the midpoint of today’s guidance. The company has no debt and capital expenditure is limited so EBITDA is a reasonably conservative measure in this case.

I don’t think things can get much worse for Tracsis and the fact it is still forecasting a significant profit this year confirms the underlying quality of the business. I am happy to wait for the PAYG contract to kick in and suspect that even if its contribution is disappointing, other parts of the business will have at least partially recovered by then. However, I have no intention to add the stock to my investment portfolio until I can see more evidence of coherent strategic execution.