Founded in 1988 in Godalming, Surrey, Triad Group Plc, (TRD.L) provides information technology (IT) and business consultancy, application development, and systems integration services in the UK. Its IT consulting services include architecture definition, development of IT strategies, feasibility studies and technology selection, requirements analysis and specification, and project and program management. The company also assists its clients with services, such as business case development, business process improvement, and change management. Its application development and systems integration services portfolio consists of bespoke development; solution implementation; databases and business intelligence; integration; and support, maintenance, and hosting services. The company serves financial services, public sector and not for profit, telecom, media, technology, transportation, and travel industries.
On April 6th 2017, TRD issued a post year-end update ahead of final results due in June. TRD said the business continued to develop satisfactorily since the announcement of the interims on 25th Nov 2016 and it was confident that further progress would be reported in June. In the absence of unforeseen circumstances, profit before tax for the year ended 31st March 2017 is expected to be around £1.5m vs. £863,000 in the previous year. At the interim stage, TRD reported a 16.4% increase in interim revenues to £14.83m, while EBITDA grew by 136.7% to £0.71m.
VectorVest stock analysis had flagged the latent potential in TRD in mid 2016, as the stock appreciated from 37p following a strong set of full year results. Today, TRD remains on the table of winners, with the VST-Vector (the master indicator for ranking every stock in the VectorVest database) recording a rating of 1.28 for TRD, which is very good on a scale of 0.00 to 2.00. VST is computed from the square root of a weighted sum of the squares of Relative Value, Relative Safety, and Relative Timing. Additionally the Growth to P/E Ratio (GPE) – comparing earnings growth rate to P/E ratio – featured TRD on account of an operative GPE ratio of 13.43, which highlights the stock as undervalued. In particular the earnings potential over a window of three years into the future (RV) is excellent. TRD has continued to deliver steady growth from 37p, but even at the current 81p, it continues to trade well below the VectorVest valuation of 147p.
The chart of TRD.L is shown above with the VectorVest valuations plotted as the green line study above the price. Earnings per share (EPS) is plotted in the window below the price as the blue study. After a strong advance in 2016 the share has traded in a “Flag” like, five wave, continuation pattern during 2017. This is a very bullish pattern. TRD.L broke out of the pattern a few days ago and is now on a BUY recomendation on VectorVest. The technical target from the flag formation is similar to the VectorVest valuation and this would amount to a potential 50% plus move from this level.
Summary: On many levels, IT minnow TRD can be considered an undervalued share. A £12.5m market cap for a company with annual turnover expected in excess of £30m and forecast profits of £1.5m flags up an imminent upward re-rating. This view is backed up by key VectorVest indicators and a valuation of 147p vs. the current 81p. Buy.
Dr David Paul
April 13 2017
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