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International Road Dynamics’ early product range had a focus on weigh in motion, meaning trucks no longer had to come to a complete stop to be measured for compliance with weight restrictions or toll assessment at inspection stations.DAVID DUPREY/The Associated Press

When you are driving down a major highway and you notice the Truck Inspection Station sign flashing, do you wonder why some trucks pull in while others continue to barrel down the highway with impunity? I used to wonder, too, until I became a shareholder in International Road Dynamics (IRD).

The company, established in Saskatoon in 1980, sells a wide range of products and services used to monitor, measure and report on vehicles while they are in motion. The early product range had a focus on weigh in motion (WIM), which meant that trucks no longer had to come to a complete stop to be measured for compliance with weight restrictions or toll assessment.

In fact, IRD installed its first automated truck ramp weigh station on the QEW in Oakville, Ont., in 1983. More recent configurations permit a highway operator to evaluate a moving vehicle not only in terms of weight but also toll collection, GPS tracking and border control, and it even has a tire sensor that measures width and pressure at highway speed. The technology improves productivity, fuel economy and the scary scenario when slow-moving trucks merge back into the traffic lanes.

So, a truck equipped with the appropriate sensor need not pull over at the truck inspection station.

Deterioration in the infrastructure in North America and other mature economies has opened up a whole new market to monitor the impact of heavy goods vehicles as they approach bridges and other structures susceptible to weight and vibration. The company is optimistic it will benefit from other features of an automated highway system. At the latest count, the company had 9,210 WIM lanes in operation worldwide and 6,030 toll lanes.

Revenues have grown intermittently from $45-million in fiscal 2010 to a current run rate of $53-million for the 12 months ended August, 2015. Canada and the United States account for two-thirds of sales, with the balance coming from a wide range of offshore accounts including Chile, China and India. Earnings per share have been erratic, ranging from a loss of 25 cents to the current run rate of 16 cents as foreign exchange fluctuations and lumpy contracts hamper sustained profitability. The small size of international operations probably means that, while they contribute to visibility and profile, they add little to the bottom line.

With all of this technology at its disposal and a global footprint, you might assume that IRD would trade at a rich valuation. Not at all: At the current price of $1.32, the stock trades at a 16-per-cent discount to the latest book value of $1.53 a share and less than half sales per share of $3.70.

There are at least two reasons for this modest valuation. The company has only 14.3 million shares outstanding, which puts it firmly into the microcap category with a market capitalization of $19-million. Few brokerage firms or institutional investors will invest the time in performing research into a company where it will be impossible to accumulate a meaningful portfolio position. A more fundamental reason is that, in spite of the sex appeal, the business is not all that profitable. In a good year, return on equity approaches 10 per cent, so a modest premium to book value represents fair value today.

To achieve significant upside from here, the company needs to grow revenue enough to absorb the overhead associated with international operations, or become part of a bigger firm in the transportation sector that already has feet on the ground in the target markets. Management and the board own 12 per cent of the stock, so a takeover is feasible but unlikely without their concurrence.

Robert Tattersall, CFA, is co-founder of the Saxon family of mutual funds and the retired chief investment officer of Mackenzie Investments.

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