Last Update 11 Dec 25
TRCS: Future M&A Resumption And Progressive Dividend Policy Are Expected To Support Upside
Analysts have nudged their price target for Tracsis modestly higher to reflect slightly increased discount rate assumptions and a marginally richer future earnings multiple, while maintaining their view that the stock remains fairly valued around £6.18.
What's in the News
- Management reaffirmed that mergers and acquisitions remain a core pillar of Tracsis's growth strategy, with a disciplined, bolt on pipeline intended to supplement organic expansion and be fully integrated into the unified business structure (Key Developments).
- CEO David Frost highlighted that Tracsis is reactivating its M&A trail after a 3.5 year pause, citing an active pipeline and strong foundations to pursue near and midterm deals in a measured way (Key Developments).
- The Board recommended a final dividend of 1.4 pence per share for the year ended 31 July 2025, taking the total dividend to 2.6 pence per share, in line with its commitment to a progressive dividend policy, subject to shareholder approval (Key Developments).
Valuation Changes
- Fair Value Estimate remained unchanged at approximately £6.18 per share, indicating no revision to the central valuation outcome.
- The Discount Rate rose slightly from about 8.73 percent to 8.83 percent, reflecting a modestly higher required return for equity holders.
- The Revenue Growth Assumption was effectively unchanged at around 2.23 percent, signalling a stable view on top line expansion.
- The Net Profit Margin was broadly flat at roughly 5.37 percent, with only immaterial rounding differences versus prior assumptions.
- The Future P/E Multiple was nudged slightly higher from about 45.62 times to 45.74 times earnings, implying a marginally richer valuation applied to forecast profits.
Key Takeaways
- Tracsis seeks to grow recurring software and transactional revenues, especially in Rail Technology, for future growth.
- Strategic acquisitions and R&D investments aim to expand market reach and improve productivity, potentially enhancing earnings and margins.
- Funding shortfalls, cyberattacks, inflation, and procurement delays have adversely impacted Tracsis' revenue, margins, and growth prospects in the rail and traffic sectors.
Catalysts
About Tracsis- Provides software and hardware, data analytics/GIS services for the rail, traffic data, and transportation industries in the United Kingdom, Ireland, rest of Europe, Europe, North America, and internationally.
- Tracsis is aiming to increase recurring software revenues, particularly in its Rail Technology business, and transactional revenue growth, which are expected to drive future revenue growth.
- The company is actively pursuing international diversification, especially in North America, which could expand its market reach and contribute to long-term revenue expansion.
- Tracsis is engaged in strategic acquisitions, such as iBLOCKS and RailComm, to enter new markets and enhance technological offerings, potentially boosting earnings through revenue synergies.
- The company is investing in R&D and developing next-generation technology platforms, which could lead to margin improvement by scaling operations and enhancing productivity in product deployments.
- A £3 million share buyback reflects confidence in future growth trajectory, which might enhance earnings per share and provide a benefit to shareholders.
Tracsis Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Tracsis's revenue will grow by 1.8% annually over the next 3 years.
- Analysts assume that profit margins will increase from 0.6% today to 5.2% in 3 years time.
- Analysts expect earnings to reach £4.4 million (and earnings per share of £0.11) by about September 2028, up from £519.0 thousand today.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 58.2x on those 2028 earnings, down from 229.2x today. This future PE is greater than the current PE for the GB Software industry at 37.6x.
- Analysts expect the number of shares outstanding to grow by 0.11% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 8.65%, as per the Simply Wall St company report.
Tracsis Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Funding shortfalls in the UK's Control Period 7 for the Rail Industry have led to a significant drop in hardware volumes for Tracsis’ remote condition monitoring business, impacting revenue and EBITDA in the short term.
- The impact of a cyberattack on a large customer caused a temporary disruption in revenue streams, highlighting potential vulnerabilities in earnings from external technological risks.
- Inflationary pressures have negatively affected margins within the Traffic Data and Events business, where increased costs could not be fully recovered through pricing, impacting net margins.
- Extended procurement timelines, due to uncertainty around the UK government's rail reforms, have delayed contract awards, thereby influencing the predictability and timing of future revenue growth and cash flow.
- Challenges in the North American market, such as slower-than-expected contract conversions and macroeconomic uncertainties, may pose risks to revenue growth and market expansion goals outside the UK.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of £6.947 for Tracsis based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £9.74, and the most bearish reporting a price target of just £5.5.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £85.1 million, earnings will come to £4.4 million, and it would be trading on a PE ratio of 58.2x, assuming you use a discount rate of 8.6%.
- Given the current share price of £4.0, the analyst price target of £6.95 is 42.4% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
