COMMENT
Telematics Lives Up To Its Potential

By Ed Bowsher (TMFArkle)
November 24, 2005

Many investors had high hopes of vehicle telematics back in 2000. The potential seemed enormous. Surely every car driver would want up to date traffic information and other exciting services?

Sadly, growth has been much slower than expected, but things are now looking rosier. So here's the lowdown on three of the best known telematics companies.

Itis Holdings (LSE: ITH)

Itis announced decent first half results this morning. Turnover jumped 37% to £6.3m, and the company stayed in the black for the second half running, generating earnings of 0.5p a share.

The company's core business is delivering traffic information to in-car satnav systems. The driver plugs in his destination at the beginning of his journey, and the satnav provides a route taking traffic conditions into account. Itis doesn't supply the satnav hardware, it just provides the traffic information. The company has deals with the likes of Toyota, BMW and Mercedes.

The big excitement with Itis is CFVD (cellular floating vehicle data.) This technology enables Itis to monitor the movements of mobile phones, and then use that information to ascertain traffic conditions.

It's early days for CFVD, but a contract was announced today with Hampshire Council. That news was welcome after last week's trading statement. Itis said then that a previously flagged contract with the Missouri state government was taking longer than expected to complete.

After last week's warning, analysts cut their earnings forecasts to 3.25p a share for 2007, which puts the company on a forward price/earnings ratio of 15. The risks are that CFVD doesn't take off, or that rival Trafficmaster starts to steal significant amounts of business.

Given the management's track record and the potential for CFVD, I'm happy to hold my Itis shares.

Trafficmaster (LSE: TFC)

Trafficmaster is Itis' big rival. Like Itis, it supplies traffic information to in-car satnavs and has contracts with Honda and Audi.

It also sells its own satnav hardware, although sales have been disappointing so far.

Shares were boosted by news of a deal with Norwich Union last month. Motorists can pay premiums on a "pay as you drive" basis as long as they have a Trafficmaster "black box" installed in their car.

This contract should boost sales of Trafficmaster's hardware, but it's hard to know how well this business will do.

Trafficmaster's overall track record since 2000 is poor. However, the new CEO looks promising, so I shall continue to watch.

Minorplanet (LSE: MPS)

Minorplanet (LSE: MPS) doesn't provide traffic information. Instead it enables fleet managers to monitor the movements of their vehicles.

Sadly, any long-term Minorplanet shareholder has had a rotten time. The shares have crashed by 99.8% since their peak in 2000.

In hindsight, there were two obvious signals to bale out. Firstly, the founder, Jeffrey Morris, sold a chunk of shares in March 2002, and then sold the rest in 2003.

And in February 2002, Maynard Paton (TMF Mayn) highlighted Minorplanet's rotten working capital position in this article. The share price was then £130, if you take into account a recent consolidation and several share issues. Minorplanet is now trading at 46p.

How right Maynard was!

New management claims to be turning things around, and a recent share issue has shored up the balance sheet. I'd want clearer signs of recovery before I considered buying shares.

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I own shares in Itis, so you won't be surprised that I think it's the best of the bunch, even though it remains risky.

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