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Tracsis – “pleased to provide” half-year trading update, so why are the shares slumping?

By Steve Moore | Wednesday 15 February 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Provider of software and services for the traffic data and transportation industry, Tracsis (TRCS) “is pleased to provide” a trading update for its half year ended 31st January 2017. Why then have the shares currently responded more than 13% lower, towards 400p?

The update notes EBITDA and adjusted pre-tax profit expected to be “slightly ahead” of the corresponding prior year period on revenue of c. £15.5 million (2016: £13.1m restated for the disposal of Tracsis Traffic Data Pty Ltd). However, it later also notes a December 2015 acquisition (On-trac Ltd) and September 2015 acquisition (SEP Ltd). Why no restating for those?

It is added that “due to longer sales cycles associated with higher value products combined with changes in the Department for Transport's franchise bid timetable, some sales anticipated to take place in H1 are now expected to take place in H2” and that, with also “high seasonality inherent in some parts of the group, the second half of the financial year is expected to be significantly stronger than the first half”.

However, despite arguing that the key market drivers within the traffic and transport markets “remain positive”, there is now clearly elevated profit warning risk here – with I also noting for the Traffic & Data Services division stated “competitive market conditions, which has led to increased price competition and associated gross margin pressure”.

No debt and cash balances of circa £12.5 million provide some comfort ahead of an interim results announcement “on or around 23 March”, but ahead of the further detail of that I’d certainly currently avoid.

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