Forget BT! I’d buy this technology share with ‘survive and thrive’ written all over it

This small-cap technology company is trading through the current crisis and the growth story remains sound, I feel.

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Telecoms share BT has suffered badly in the recent market crash. But I’d ignore the troubled stock and focus on a smaller company that looks poised to thrive.

In today’s half-year results report, small-cap software and services provider Tracsis (LSE: TRCS) revealed a strong balance sheet – a cash position of £26m as of 31 January and zero borrowings. That sum compares with annual revenue for the trading year to July 2019 of just over £49m and operating profit of almost £7m. That’s a reassuringly large pile of money!

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I’d describe the company as being well-financed, which augurs well for surviving the current coronavirus crisis. Just to be sure, the directors have deferred payment of the interim dividend, which will keep £0.3m in its coffers for the time being.

However, when there’s “more clarity” about the ongoing effects of the pandemic on the business, they’ll review the situation. And one possible outcome is the combination of an interim and full-year dividend for the full trading year. Another is the retention of cash in the business “to invest in future growth opportunities.”

Effective acquisitive growth

And that’s what the firm’s good at. An acquisitive growth programme has propelled shareholder returns. Eight years ago, the stock was changing hands for around 67p. Today, it’s at 581p and topped out around 800p in early March before the recent plunge.

I’d have been happy with returns like that and believe there’s more to come from the firm, perhaps much more.

Tracsis built its niche providing software, hardware and services for the rail, traffic data and wider transport industries. Chief executive Chris Barnes said in today’s report that despite the Covid-19 crisis, the Rail Technology & Services division has been “resilient.”

But the Traffic & Data Services division is being “majorly impacted.” However, the firm has taken “a series of actions” aimed at reducing the damage to the business as much as possible.

To put that in perspective, during the last full trading year, around 70% of profit before tax came from the Rail Technology & Services division, and 30% from Traffic & Data Services. Overall, it seems Tracsis is in a good position to trade through the crisis with a contained hit to profits.

During the period, the 2019 acquisitions of Compass Informatics, CTM and Bellvedi “performed well.” And post-period on 10 March, the company acquired iBlocks Limited, a UK-based software company specialising in solutions for the rail industry. The firm’s expansion continues and the outlook is positive.

The growth story remains on track

Looking ahead, the directors are “confident” about the long-term prospects for the business “post-Covid-19.” Profits will likely reduce in the second half of the current trading year because of the crisis. But there are also “positive growth drivers” in the transport markets that the company serves.

For what it’s worth, the company started the first half of its trading year with strong trading. Revenue rose by 41% in the period compared to the equivalent period the year before. And adjusted like-for-like EBITDA elevated by 23%.

I like the look of this one and see the current dip in the share price as an opportunity to research the stock with a view to buying some of the shares for the long haul.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Tracsis. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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