The company that makes the trains run on time

Tom Bulford looks at a small-cap company which has developed a way to cut costs and improve safety on Britain’s railways – and spin a tidy profit too.

“It was a pitch-black, rainy and windswept winter’s night in the bleak Cumbrian countryside…”

Not many corporate presentations sound like an extract from Sherlock Holmes, but such was the case with one I have just been reading. Sadly this is no fiction. It is not the baying of hounds that we hear in this desolate scene, but the sound of the London to Glasgow express careering off the track and crunching into the ground below.

In 2007, the Grayrigg disaster caused one person’s death and left 86 others injured. National Rail accepted responsibility and was fined for negligence. But the failure to inspect a set of points led to further accusations of a ‘shambolic’ approach to maintenance and a £4m fine for Network Rail.

‘Shambolic’ is one of the milder adjectives I have heard when waiting for delayed trains at Paddington station. But all of this chaos is providing a very nice business opportunity for one small company that is making radical changes to our train system.

These outdated practices need changing

The company I am talking about is called Tracsis (TRCS). I went along to its office to catch up with Tracsis chief executive, John McArthur. McArthur has a low profile in the City but, as is usually the case, this is because he does not need a high one. Tracsis has been progressing very successfully without needing assistance from financial advisers, but investors have been taking notice. In the last year the share price has more than doubled – rising from 50p to 126p. And there should be more to come.

Tracsis helps the railways run better. Now, before you start to compose complaints about overcrowding, lack of punctuality and the occasional express careering off the track, consider the problem. The infrastructure is often old and is checked, if at all, by men walking up and down the track. Passenger demand is still measured by staff counting the numbers passing through the barriers – the problem here, by the way, is that if you buy a return ticket nobody knows when you will make the return journey.

Staff scheduling is a rudimentary affair. It is all very well driving a train from one end of the track to the other but the driver still expects to get home that night. The industry is still highly unionised, it is under increasing pressure from health and safety legislation and it also needs to make a profit. It needs to be more efficient, and that is keeping McArthur’s team fully employed.

 

How Tracsis can help

The origins of the business lie in work done at Leeds University on intelligent networks. Tracsis works for most of the train operating companies. One of these runs over 2,600 daily services, has over 300 trains, 470 stations and 1,400 rail crew whose terms of employment are determined by four different labour agreements. How can it make best use of these scattered resources?

In the past this was worked out on blackboards and the backs of envelopes, but today intelligent software can determine the optimum timetable and the best scheduling of fleet and crew. Simply by having staff in the right place at the right time, Tracsis reckons it can achieve 15% labour savings. In today’s straitened economic times, cost-cutting is high on the list of priorities.

McArthur believes that this service could be sold overseas, while he is also looking at potential opportunities in the UK’s bus and road transport sectors. But, following the acquisition of MPEC Technology last year, Tracsis now has another offer for the railways.

Long-awaited switch from manual to machine checks

Its intelligent infrastructure system uses sensors to detect faults, relaying them via wireless connectivity to a control room. McArthur’s eyes light up at the thought of thousands of sets of points, of level crossings and other crucial parts that could benefit from remote monitoring.

He told me about a pilot project on overhead cables. In hot weather, these have a tendency to sag – a problem that is corrected by a system of wheels and pulleys that is inspected only once in seven years. By using sensors, these could be monitored continuously, spotting wear and tear before it causes a problem, and doing away with the need for manual checks.

Tracsis is a very nice little niche business, providing obvious benefits to its customers and facing limited competition. It has a great record of profitability and cash generation, has a knack of making good acquisitions, and is not short of opportunities for further progress. Broker WH Ireland is forecasting a pre-tax profit of £3.2m in 2012, and earnings per share of 10.1p. But having already upgraded its forecasts three times this year, these numbers could yet prove to be conservative.

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