Journeo Share Discussion Threads

[mcmather] 16/1/2024 10:35

Nice little line above "hit an upwards 5 year price breakout".

[vfast] 16/1/2024 09:44

Looking good to test the 300p level soon.

[dealit] 16/1/2024 09:38

The market seems to like the selling for whatever the reason is, S/P going North today.

[eeza] 16/1/2024 09:17

Yes, winding down and selling all their holdings.

[weatherman] 16/1/2024 09:11

Downing DSM are breaking up their small co. investment trust.

[davr0s] 16/1/2024 09:06

People buy and sell for a multitude of reasons on a variety of timescales. Just because it doesn't fit one's view doesn't mean it's the wrong thing to do. Maybe they need to rebalance if they have too much in a position, for example? I rarely take much notice of this kind of thing

[batham1] 16/1/2024 08:52

...but why when the price keeps going up

[eeza] 16/1/2024 07:39

Downing (DSM) reduces again - winding down.

[philly cheesesteak] 06/1/2024 13:44

Only a 132.5k sell on Thursday, reported after close yesterday, stopped a significant break to new all time highs this week. Fairly safe to assume that Downing were the sellers given their fund closure + Dec 27th RNS. 0.8% of share capital is quite a chunk at least. Wouldn't it be nice if another II wanted to buy the remainder of their stake? BGF have been quite active of late & you'd think JNEO would be right in their wheelhouse.

[philly cheesesteak] 05/1/2024 09:25

Cheers Adam, agree on the board and it should be mutually beneficial to have multiple brains figuring out the opportunity here.

Your comments make a lot of sense. My figures were arbitrary & based on guesswork as to where the incremental ~£25m of revenue will be derived. Either way, a gross margin in the region of 40% appears achievable & should provide the financial resources to expand the business, support further M&A & grow EPS strongly.

The major uncertainty is what 'double digit operating margins' imply. There is a significant difference between 10%, 15% and 20%. Hopefully we'll get more meat on the bones at the final results & any presentations that follow.

[nchanning] 05/1/2024 08:31

Management gross margin targets of 30-50% on hardware and 70-80% on software

[adamb1978] 04/1/2024 18:45

Hi Philly

Thanks for the insightful posts and good to have a board where there is some intelligent conversation.

Looking at your assumptions above, I'd say that your SaaS/support revenue looks toppy and the hardware margin looks low. 85% SaaS margin is feasible if its not an overly data intensive application and implementations are swift, however if that also includes support too, it feels a little ambitious to me. That said, 25% HW margin suggests little value added from JNEO and that they're almost just passing through all kit. Not sure whether that is right? 25% margin is effectively just a reseller, without doing much to it.

Arguing against myself, I was looking at them getting to a 38% blended margin by the time which they hit £70m revenues. I was also assuming 10% p.a. opex growth p.a over 4 years to get to 18% EBIT margins and 57p EPS.

Either way, there share price looks way to low to me if they can execute.

Adam

[philly cheesesteak] 04/1/2024 17:34

I'd hope Tracsis was a higher quality business given it's market cap of near £300m!

The point of the last post was that there was a time when TRCS revenue exploded in a similar manner to JNEO, the result was a significant re-rating in market cap over a period of years. They are both in the business of transportation software & hardware.

Certainly TRCS have higher gross margins at present, notably they started out as a pure play SaaS and then slowly added lower margin revenue; in 2011 GM's were 88%, fell to 62% by 2015 and today sit at ~60%.

JNEO are looking to go in the opposite direction; from a lower margin hardware provider to a SaaS / hardware mix. Where can their GM's get to over the next couple of years?

If we take their medium term £70m revenue target and split it in an arbitrary manner;

£20m recurring software / support revenue (from £6m at Mello) @85% GM
£50m hardware revenue @ 25% GM

You get to a 42% blended GM.

This level of GM would provide £29.5m of gross profit and compare to a current overhead base of ~£8m PA. It would allow them double their cost base and still report a 19% operating margin...

Does this suggest that split is too high? Potentially. It's an interesting exercise though & would be good to get other input on what we think is achievable?

[nchanning] 04/1/2024 16:11

Tracsis , at least the rail division , is a higher quality business with more recurring revenue and higher gross margins . However it's been more of a steady grower whereas Journeo has had some spectacular revenue growth over the last few years

[philly cheesesteak] 04/1/2024 15:46

Part 1; valuation. I've looked back at the period when Tracsis broke out from a £10m tiddler to become a £100m+ market cap;

2011; Revenue £4.1m, Gross Profit £3.1m, Operating Profit £1.1m, EPS 4.5p, Share Price 58p, P/E 13x, Cash £4.7m, Market Cap £14m.

2012; Revenue £8.7m, Gross Profit £6.8m, Operating Profit £2.9m, EPS 9.9p, Share Price 124p, P/E 12.5x, Cash £7.6m, Market Cap £31m.

2013; Revenue £10.8m, Gross Profit £7.8m, Operating Profit £2.5m, EPS 8.4p, Share Price 163p, P/E 19x, Cash £6.5m, Market Cap £41m.

2014; Revenue £22.3m, Gross Profit £12.8m, Operating Profit £4.1m, EPS 12.9p, Share Price 330p, P/E 25x, Cash £8.9m, Market Cap £87m.

2015; Revenue £25.3m, Gross Profit £15.8m, Operating Profit £4.5m, EPS 14.1p, Share Price 434p, P/E 31x, Cash £13.3m, Market Cap £115m.

Note that the P/E ratio sat at ~12-13x in 2011-12, before steadily expanding over the period as EPS compound growth became established (5 year CAGR from 11-15 = 26%)

In essence it steadily transitioned from being an AIM micro cap that IPO'd in 2007 at 40p and went sideways for 4 years, into a high quality compounder.

If JNEO management can achieve their medium term goal of £70m+ revenue at a double digit operating margin then the figures will easily eclipse those of Tracsis in 2015.

The P/E should expand as PI's get attracted to the growth story, the simplicity & stickiness of JNEO's product offering should also be attractive (in the same way it was at Tracsis). The transition to SaaS will also undoubtedly help.

Next I'll look at the impact that acquisitions had on Tracsis's growth...

[nchanning] 04/1/2024 12:34

For fans of technicals picture perfect Minervini breakout from base in progress if we can finish strongly on big volume today

[philly cheesesteak] 04/1/2024 11:46

"Dan Coatsworth, investment analyst at AJ Bell
Journeo
Investing in smaller companies is not for everyone but, for those willing to consider them, Journeo stands out. It provides technology systems for bus and rail operators and real-time information for passengers.

For example, the company says its digital wing mirrors improve visibility for bus drivers, eradicate blind spots and reduce the risk of accidents.

News from the company has been positive over the past year with strong trading, and acquisitions have opened doors to new opportunities.

Analysts expect pre-tax profits to reach £3.9m this year and £4.4m next – quite a breakthrough compared with £900,000 in 2022.

At 266p Journeo’s shares trade at about 11.5 times next year’s forecast earnings. That low figure puts the stock into “value” investing territory even after the shares nearly doubled in 2023."

[hew] 04/1/2024 11:28

Babbler, thank you, though took me a couple of minutes to locate the JNEO tip. In the Money section under the heading "Ten stocks top investors are backing in 2024." Actually an AJ Bell tip by Dan Coatsworth. Worth reading.

[adamb1978] 04/1/2024 09:59

Hi Philly

Great post and your thesis is similar to mine - getting to a 40p-50p EPS and PE in the 20x-25x range, leading to a £10 share price within 2-3 years.

Also agree about a divi. I'm not bothered with it myself but others are and therefore would be good to increase the pool of possible investors. I think there has to be a good chance that they introduce a small one this year.

Adam

[philly cheesesteak] 04/1/2024 09:39

Still think that this looks like the next Tracsis. The measly current market cap is out of sync with material profitability, significant cash balances, appetite for further M&A, quality management & growing recurring revenue base (£6m at YE as per the Mello presentation).

My thesis is that EPS growth + PE expansion to align with Tracsis will result in shares continuing to move higher over the next few years.

If the 23.1p FY24 EPS forecast grows to 35-40p by FY26 (£70m top line @12% OM would give ~38p), and the PE normalises to 24x, shares would trade at £9.12.

Furthermore, in the next 3 years they should generate ~£15-20m of FCF, to add to the £10m balance they likely finished 2023. This allows for 2 things; further accretive M&A + the establishment of a small dividend to attract income investors.

I think it will be useful to dig further into the Tracsis comparisons in future posts, particularly how they've grown through self funded M&A.

[babbler] 04/1/2024 09:39

Tipped in telegraph for a good 2024 today

[eeza] 27/12/2023 07:09

Holdings RNS

DSM (which is winding down) reduces.

[vfast] 13/12/2023 10:53

Just to note the MM's are bidding up to 36,000 shares at 270p. Looks like someone is after a sizable amount of shares.