Your m8 , my m8, TRAKM8

In one of my previous blogs, I wrote an article about the significance of Director buying entitled “Put your money where your mouth is”.

I do like Directors to own a fair chunk of their own businesses, and I’m always interested when they buy or sell.

This month I noticed that the Directors of a company called Trakm8 had bought 400,000 shares between them, which collectively takes their holding in the company to around 46%. Notably, the two Directors that purchased the lion’s share were the Finance Director and the Sales Director.

After some research, I decided to join them.

From their website, “Trakm8 designs, develops, manufactures, supplies and supports vehicle tracking, fleet tracking and GPRS/GPS tracking products and services. The company provides both hardware and software telematics solutions.”

I think that the market may be missing the underlying growth story here, and may have been mislead by what appears to be a drop in EPS from 3.1p (March 2010) to 1.1p (March 2011).

This is one of those instances where the EPS is not the most reliable indicator of the progress a company has made.

The difference in the EPS figures is accounted for by a substantial tax credit in 2010, as opposed to a tax charge in 2011. This masks the excellent underlying growth.

Revenues grew by 22% to £4,186,000 and operating profit 19% to £329,000. Profit before tax increased 23%.

What is also impressive is that they increased cash balances from £427,000 to £1,119,000, gross margins were 66.6% and the NAV increased to £2,236,000 (includes £1.2m of intangibles). The market capitalization, when I last looked, was around £2.7m. This certainly doesn’t look expensive given the growth prospects and balance sheet.

Further attractions include contracts secured with Jewson and the AA (over the past year or so), a significant jump in monthly recurring revenues from 49.9% to 61.7%, and relatively low borrowings at £184, 491 (reduced from £223,265 the previous year).

The Chairman’s outlook states that “The board is confident that the revenues and profitability growth of the group can be continued over the next 12 months”.

The current p/e ratio is about 13, and my conservative forecast puts the company on a forward p/e of around 10. This seems mean given the growth prospects.

A couple of bear points might include

1)       The Company not paying a dividend. They prefer to reinvest their growing cash resources into the business and look for suitable acquisition targets.

2)       The illiquidity of buying their shares.

Overall, it looks an interesting story, and if growth continues over the next two to three years then the share price has substantial upside potential.

As ever, time will tell.