| IS Synectics (LON:SNX) A TAKEOVER TARGET?

27th Dec '24 by gmtrader

11 comments 687 reads

27/12/2024

Share Price £3.525

Market Cap £61.39M

EV £56.58M

While the Share price has 3 bagged in the last 2 years from 83p on 27/01/2022 to the current price, the more I look into the company the more I believe it could be a take over target.

Covid hit the company hard. A lack of contracts during this period while Casinos were closed and none being opened. Security in the Oil sector was lacking too while the Oil sector struggled.

But Covid was actually beneficial to the company. It forced the company to make cut backs and become more efficient. Employees went from a count of 400 to 260. Directors took pay cuts. Synectics kept the lights on while not diluting the share count that today remains at just 17m.

So why a takeover target?

The company has no debt and about £6m in cash.

It is growing revenues and profit margins, repeatably beating forecasts.

The company has 2 divisions, Systems and Security.

Systems is the better part of the company with profit margins in the range of 12.5% while Security is around 7.5%. The security side has recently been rebranded and runs from a separate site from the Systems side. This is valued at approximately a third of the current Market cap. It would make sense to sell off this side of the business and concentrate on the higher margin side.

The system side could well be about to go into a bull run. Casinos are now on their way back since covid with 20 new large casinos due to be built over the next 5 years. Synectics (LON:SNX) are seen to be the “Best in Class” when it comes to Casinos with clients talking of not even to bother to tender out new contracts any more. These Casino contracts are worth in the region of £15m+ per contract, Sounds a lot, but the reality is it is small change to these Casino companies that are spending $1B just on site upgrades and have revenues of $4.5B a year.

https://indd.adobe.com/view/5a171e2b-efcb-4102-8815-701c15b0c22f

Then there is a likely bull run about to happen…

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LeicesterPete

28th Dec '24

Excellent summary, I'm a holder and can't really add much more. One further UK tailwind is the introduction of Martyns Law (enhance public safety by ensuring there is better preparedness for, and protection from, terrorist attacks) I think it is realistic to expect certain venues to upgrade their security systems. There is a gap to fill at 320p where I have an alert set to add, but it didn't fill the last one!

Lochinver

6th Jan

Thanks for you very useful overview

Personally I am always wary of an accountant taking the top job. Not a customer or product specialist and risk aversion has been drilled into them.

Having said all that, the newish ceo has been with the business for a very long time so should have a very detailed understanding of how it works.

I have just taken a small initial position after doing my dd so it will be interesting to see how things progress

gmtrader

Having followed the trades daily it’s become obvious the largest holder has been selling. Hopefully just trimming their position after the returns they would have made over the last year. So maybe a little pain short term, but longer term looks promising if no takeover bid happens. It’s good the buys are matching the sells and allowing a consolidation period to happen. It always worries me a little when a share just keeps going up.

Think there was a gap too at around £2. No way I see that filling!

sevenccc

Hi gmt

Yes will be interesting to see if Whitehall are just taking a little profit off the table or whether this is a strategic change of direction and the sell off continues. Hopefully the former. Can't blame them when I did the same pre-Christmas.

Share the concern of Lochinvar though. Whilst many CFOs are competent and can manage businesses well I haven't met many that can really provide inspiration and leadership. Probably more of an issue in a small specialist? Let's see how it runs. All good so far.

7th Jan

Yep I agree but she does has a lot of experience already in the company and is surrounded by some good bod. Ofc I’d rather have the previous ceo but that is clearly not possible due to his sad death. So instead I’d rather have someone who knows the business well.

14th Jan

Hi gmtrader. It’s reassuring to know that the new CEO has some good people on board. Can you elaborate on this a little ?

Currently she is both the CEO and CFO, and is the only executive director on the board. That’s a really tough gig. And this is a very complex and far reaching business.

I know they are currently recruiting a new CFO so let’s hope there is news of progress on this soon.

It would be great to be reassured that she is being given all the help she needs to help the business stay on track .

Yep she is acting solo atm. I was referring to Bob Holt who has great experience. This is particularly why I would not be surprised for them to sell off the lower part of the business and concentrate on the higher margin part. It would be a shame if the company does get taken over but it wouldn’t surprise me. Hence why I’m looking for take over targets.
just read this:https://www.cityam.com/why-eve...

21st Jan

To elaborate a bit further, Synectics has 2 companies. Synectics Systems, run by David Aindow who joined in 2004 and David Gavin who joined in 2008. It also has several other directors. The other company has been rebranded and is now called Ocular. Ocular is run by Chris Jepson with also several other directors. The 2 companies come under the umbrella of the company Synectics who is run by Amanda Larnder. They are currently in the process of recruiting a new CFO, with the hope of announcing a new CFO by the time of the next results due next month.

29th Jan

Thank you gm, that is really reassuring to know and goes a very long way in clearing up my misgivings about having an accountant in the top job.
Following the recent share price fall, and the information regarding management that you have given, I will now be looking to add to my holding.

17th Apr

It has been a rocky few months since January for the company with regards to the share price. But the good news was there was no bad news released and the sp just moved from profit taking and in general the market pullback.

The share price bounced back off the 200ma which is always a good place to hold and is now back above the 50ma. It's a shame it never dropped to 200p to fill the gap. I would of personally loved to have seen that.

Ex dividend next week on the 24th April. Just a small 2.5p payment.

Recent interview of Judith McKenzie by Paul Hill with Judith still liking Synectics (LON:SNX) and saying she would not be surprised if the company was a take over target. Her comments are at 67 mins near the end of the interview.

IS Synectics (LON:SNX) A TAKEOVER TARGET?

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Gmtrader

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