Kapsch TrafficCom Automates Toll-Taking

Because governments like to increase toll revenues in recessions, the Austrian company's business looks strongthough its stock is dragging

Most companies that depend on government contracts can get hit hard when an economic slowdown reduces tax revenue. With Kapsch TrafficCom (KTCG.MU), it works the other way around: When governments want to raise money, they install automatic toll collection systems made by the Austrian company, which ranks No. 34 on this year's BusinessWeek European Hot Growth list.

Arguably, Kapsch, with toll systems installed from Argentina to Bangladesh, stands to profit as recession spreads around the globe and countries look for ways to offset declines in tax revenue. "We see plenty of projects globally in the long term," said analysts at Vienna's Erste Bank (ERST.F) in a recent note to investors.

The kind of system that Kapsch makes has proliferated in recent years as road operators look for ways to collect revenue without causing traffic jams. Kapsch, which is also based in Vienna, makes wireless signaling devices that allow vehicles to pay tolls electronically, without stopping, when they pass a tolling station. The company also makes the equipment that detects the signals and processes the information, so drivers later receive a bill or see the toll debited from a prepaid balance.

Measuring Traffic Congestion

Competitors include InTranS Group, of Carle Place, N.Y., which serves primarily North American customers and provides the FasTrak electronic toll-collection technology used in California, and Mark IV Transportation Technologies of Mississauga, Ont., which supplies the equipment for the E-ZPass toll system in use from Maine to Virginia.

On top of electronic toll-payment systems, Kapsch also makes equipment that automatically measures traffic levels, detects speeders, or alerts authorities when there is smoke in a tunnel. Active in 30 countries, the company has been moving into the U.S., recently testing an automatic toll collection system near Denver. One of the newest opportunities for Kapsch is a growth area pioneered by the city of London: Anticongestion schemes that automatically charge drivers when they come into urban areas. Kapsch already has supplied systems to the British city of Leeds and is one of a group of vendors that could get a piece of London's system.

For investors, Kapsch shares traded on the Vienna Bourse haven't exactly been an easy path to profit. The stock has plunged more than 60% this year on economic concerns. Yet the share performance contrasts with the company's financial results. On Aug. 18, Kapsch reported a 79% increase in sales, to $77 million, in the quarter ended June, while profit more than doubled, to $15.6 million. And, notes Erste Bank analyst Daniel Lyon, Kapsch TrafficCom also has a chance to pick up contracts in such far-flung places as South Africa and Kazakhstan. The bank rates Kapsch a buy. With a price-earnings ratio now below 6, the shares could hit the fast lane when (or if) the global financial panic subsides.

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