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At the height of the dotcom boom, the shares of then-fledgling vehicle telematics company Trafficmaster (LSE: TFC.L - news) (LSE: TFC) topped £11. The company is now trading at a more prosaic 30 pence -- despite having many more customers, and a proven business model.

Shareholders in AIM tiddler CybIT Holdings (LSE: CYH), another telematics company, haven't experienced quite such a precipitous decline in the value of their holdings. The ride hasn't been a smooth one, though.

Ending 2001 at around £2, the shares plunged to just above 20 pence before soaring past the £2 mark again in 2004. A slow decline to 50 pence or so then began, and they've bumped along at that level until the credit crunch set in. Currently, they're at 34 pence or so -- although as with all small AIM shares (the market capitalisation is just £8 million) the spread is quite wide: four pence, not far short of 12%. (However, AIM offers worse spreads, it must be said.)

Telematics

Vehicle telematics is the future. For fleet operators, the technology offers vehicle tracking, route optimisation, and better customer service. CybIT delivers hardware and software solutions offering just this, and reckons to have signed up 50,000 vehicles in 2,000 different fleets.

Sales are made to both private and public sector fleet owners. New customers, announced with the preliminary final results, released today, include The Highways Agency, Greene King (LSE: GNK.L - news) (LSE: GNK), Kwik Fit and Interserve (LSE: IRV.L - news) (LSE: IRV).

CybIT also has foreign subsidiaries in Germany and Sweden offering the same vehicle-based telematics offerings, as well as separate divisions covering the marine industry and mobile assets.

Solid results

It's been a tough year to sell anything which isn't seen as absolutely essential -- especially to hard-hit sectors such as transport and logistics. "There is little doubt that the current economic climate is having an impact across all our target market sectors," is how the company phrases it.

That said, revenues increased by 30% to £25.5 million, profit before tax climbed 27% to £2.1 million, and earnings per share increased by 52% from 4.65 pence to 7.06 pence. For the first time, dividend payments become a genuine possibility, and the company is putting in place mechanisms to facilitate this.

Apart from organic growth, acquisitions are making an impact, too. Its German subsidiary, Truck24, was acquired last year. And in August 2008, for a nominal sum, CybIT acquired the trade and assets of OxLoc Limited, an Oxford-based supplier of battery powered tracking units for HGV trailers, plant and other mobile assets.

What's not to like?

Despite signing a contract with Ford to supply aftermarket vehicle telematics kits for cars and light trucks, stellar growth is unlikely. There are other competitors in the marketplace, and only so many fleets to go round. Market saturation, at some point, will occur.

And as AIM tiddlers go, a market capitalisation of £8 million is small. While Trafficmaster has made significant headway in the US market, CybIT remains too small to get much traction there. Management have sensibly concentrated on market leadership in the UK, with Europe as the next priority.

What's more, in economic conditions like these, any smallish business remains vulnerable to financing difficulties. CybIT has negotiated a new three-year £4 million revolving credit facility with bankers HSBC (LSE: HSBA.L - news) (LSE: HSBA), and I'd urge any prospective investor to carefully read the paragraphs in the results relating to this, and to the financing of CybIT's lease book.

Why? Because the business relies heavily on third-party leasing companies underwriting its sales by providing finance, and were this financing to dry up, CybIT would need to fund the leasing book itself, resulting in a short-term hit on profits -- albeit one eventually counter-balanced by a subsequent increase in profitability, revenues, and cash generation.

One to buy?

CybIT is a decent business, far from AIM's wilder reaches. The customer base is blue chip, and includes a significant proportion of public sector clients. Dividends next year are a real possibility, and the share price is set to benefit from both this and economic recovery. In a tough market, this year's results can't be faulted.

As for whether it's a buy, it comes down to each investor's individual risk profile. There are far riskier AIM shares out there -- albeit with a bigger share price upside. There's a lot to like about CybIT, but further research is required before taking a stake.