Traffic monitoring and tracking pioneer Trafficmaster has seen turnover rise during a bad economic year, and expects good progress for 2009.
Trafficmaster (LSE: TFC) was a pioneer of traffic monitoring in the UK, and is responsible for a lot of the cameras and tracking technology that you see sitting atop posts by the sides of the road, peering over motorway bridges, and generally watching where the traffic all goes and how fast it moves.
Coupled with satellite navigation equipment (SatNav), such real-time information can greatly assist journey-planning, updating routes and accounting for delays as they happen, in a way that SatNav alone can never do. And combined with tracking devices secreted in vehicles, the network can also help keep tabs on where stolen cars are heading.
The company was a favourite in Foolish circles in the first few years after it came to market in 1994, as it looked like it was well on the way to establishing significant barriers to entry -- the company that got its network out there first, in line with any regulatory hoops that needed jumping through, would have quite an advantage over its rivals. And in those first few years, shareholders (including me at the time) did reasonably well.
Share price stagnation
But after a brief interlude when the shares shot way up and then way back down again during the tech stock boom and bust, the price has languished, dipping down into the Penny Share territory where it resides today. And that share price has been sitting on the back of a fairly erratic financial performance over the past few years, with 2008 full-year results just in. Comparing the new figures with the past few years' results and latest forecasts, we see:
| | 2005 | 2006 | 2007 | 2008 | (f)2009 |
|---|
| Turnover (£m) | 42 | 53 | 48 | 56 | |
| Pre-tax profit (£m) | 0.9 | 5.8 | 4.9 | 4.8 | 5.6 |
| EPS (p) | 0.6 | 4.3 | 4.0 | 4.4 | 4.1 |
(Forecasts will, of course, be updated in due course in response to the latest results)
Debt is always a fear at the moment, and Trafficmaster had a net debt of £8.2m at the end of December. But it has committed banking facilities with Barclays (LSE: BARC) which is arguably one of the healthiest of the UK's banks these days, of £13m, so there is some room for manoeuvre there.
Chief Executive Tony Eales does appear to expect growth in 2009, saying "Trafficmaster delivered an impressive performance in 2008, despite an increasingly difficult economic environment and, although we expect 2009 to bring many challenges, we believe that the company is in a strong position to continue its progress". If he's right, the 2009 EPS forecast might need to be adjusted upwards.
The 2008 performance looks pretty good for a year in which discretionary spending fell and many people cut back on expensive items like new cars and associated goods and services, but the future will surely be dependent on the motor vehicles market, which may well prove to be a double-edged sword.
On the one hand, falling car markets will mean fewer new cars being bought with Trafficmaster goodies, and possibly fewer journeys being made. But on the other, fears of global warming, energy crises, and that ever-popular buzz-phrase "carbon footprint" could increase the demand for technology that improves the efficiency of our journeys, and maybe tracking and monitoring technology will become standard equipment in future generations of carbon-clean transport. Niels Bohr was right about the future being one of the trickiest things to predict.
Valuation
The current share price of 18p has the shares on a trailing and forecast P/E of just over 4 and a market capitalisation of £24m. The results for 2008 did come in a shade ahead of forecasts, so if the company sees growth next year and achieves a better EPS figure than current forecasts suggest, that P/E will come down, and that could make the shares look like quite a bargain.
Should we stock up on Trafficmaster shares at 18p? Let us know what you think on the Trafficmaster board or in the comment section at the bottom of this article.
More from Alan Oscroft:
Alan has not had a beneficial interest in Trafficmaster for quite a few years now!
