Small Cap Value Report (Fri 23 Jun 2017) - SRT, no other companies reporting
Good morning, it's Paul here.
Apologies for yesterday's lack of report - there were hardly any results or trading updates within my remit, so I decided to have a duvet day.
Well, I'm raring to go today, but there's literally nothing on the RNS in my remit, in terms of trading updates or results.
SRT Marine Systems (LON:SRT) reports a contract win, but it sounds not material in size;
...Whilst a small project, we are delighted to have the opportunity to work with the FAO to help another nation build their maritime domain awareness and management capabilities."
EU settlement rights - an interesting article in today's papers says that Theresa May has offered to give European citizens settlement rights in the UK. Whatever the politics of it, I think this should be reassuring for companies which employ a lot of European workers, either directly, or through agencies.
If you recall last year, there was a big drop in the price of Staffline (LON:STAF) to c.750p per share, as most of its workers are E.European. That would have been an excellent buying opportunity, as fears about Brexit limiting the numbers of European workers proved unfounded.
Also, from discussing this issue with lots of people, there is definitely a sense of hurt, and worry, amongst European workers. One friend, who runs a small chain of pizza restaurants, employs mostly Italians. He said that they're likely to stay in the UK, but they feel less welcome here now.
So I think Theresa May making it clear that there won't be any expulsion of European people from the UK, is just the right, decent thing to do. People should never be used as a bargaining chip, so the UK is right to make a fair offer on this issue.
It also means that there's less likely to be a shock to earnings of UK companies employing Europeans. I've always thought that, in practical terms, very little is likely to change after Brexit. All the doom-mongerers on this issue are mainly just trying to justify their own position, by continuing to argue that Brexit was a terrible mistake. I don't think there will be any trade barriers, because neither side wants them. So this could be a good time to revisit sectors which have been hit by worries over Brexit. I might look at car dealerships again.
Well, that's it for this week. Have a lovely weekend, and we'll see you back here on Monday!
Regards, Paul.
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37 comments
Jamiemp, I appreciate your interest, but I don't appreciate the sarcastic tone.
SRT certainly has risks - the numerous national domain awareness systems sales it's working on may all fail, or current clients might not pay in part or in full, mandates may not be enforced, or the technology may be superceded by alternative solutions. On the other hand, there is a substantial pipeline of sales which, if they materialise, have the potential to cause a big upward re-rating of the share price. Your mind seems to be made up on SRT, so why not make a constructive argument instead and let us know where you think would be a better place to put our hard earned money?
B2V
Because, while I do well stock trading, I don't pretend to have any special insight into most stocks. This is an exception. Hence I thought I would chime in for anyone looking for a view in a niche market and now I've responded to a few challenges to invest my time writing a structured bear case.
I disagree on the potential for re-rating: my point is this is already rated as if it were making strides into a new, unexploited market with little prospective competition. As the company and broker state. However, this is not the case.
You seem to have made your mind up. I haven't personally: I'll keep an eye on it, in case they pull back to a more realistic price in a year or two. I would see that happening quickly if they fail to convert the blue sky portion of their pipeline well in advance of the next results. Bear in mind the present acceleration was not forecasted.
I could be wrong and the holders will eek out a little more upside. Noting there's a lot priced in already. But there's plenty of other trades and I am sure your other picks are as good as mine. Anyway, its a good a time as any to be in cash if in doubt.
Of course I could be way off and they'll dominate an expanding market over the next few years. It would take a lot to move the valuation higher in the short term I submit.
Apologies for the sarcasm, which is not at all directed at you.
Visa viz Eupean staff. For those EU national remitting payments back to their own country, the decline of the £ is making it a less attractive currency to receive. This plus uncertainty probably hasn't helped.
I might disagree on May's statement being good for staffline.
- they employ and act for lots of europeans
- mays statement says that ifthey are here for 5y, they can stay
- staffline make money on the outsourcing - their 'usp' is to get europeans who do more for less and get x% of the salary
- staffline make money on the recruitment - their 'usp' is to get europeans who do more for less and get y% of the first years salary
freedom of movement has gone.
this introduces frictions into their business model.
thus chances are their income will fall all things being equal
"AIS has multiple applications in the maritime market, ranging from interest and entertainment to security and safety. Operators of leisure craft might use transceivers to monitor passing marine traffic around them for interest, giving far greater information than radar returns."
I agree that the wording is bizarre, And does rather raise questions about how far they understand their markets, but the take up of AIS by leisure craft is not a side issue. It's increasingly worthwhile, and common, for leisure craft to have AIS, and it offers significant advantages over radar if you are crossing the channel and want to keep out of the way of the streams of large ships in the shipping lanes that have to be crossed. AIS is certainly not for "interest" in those situations.
Peter
Absolutely. The same for fishing fleets as a navigational hazard, the economic management of the world's fishing fleets, piracy. All serious issues.
This is no different from life saving apparatus, oil pollution, air pollution, ballast water management and any number of other issues the world's maritime industry violently agreed on. Have a look at the progress they made legislating and enforcing safety measures. Almost without exception they are galvanised by an eventual high profile disaster.
In the meantime SRT and Finncap haven't quite settled on what will drive this solution.
I hope they find success though, I'll have my own AIS monitoring API ready to go sell to the Seychelles.
Haven't you embarrassed yourself enough Jamie? Bluster is no substitute for facts. Good luck with your API.
Thanks. Enjoy the jam: it should be there tomorrow.
Hi all - as an example of the impact on EU staff of Brexit the Health Service Journal recently found that the number of EU nurses leaving the NHS went up by a third in a year (2016-17) compared to the previous year (2015-16). In addition, the number of EU nurses registering to work in the NHS has gone down dramatically. This was a graph someone produced on Twitter. This is obviously quite dramatic and may well be replicated in other employment areas especially where workers are likely to stay in the UK for at least a couple of years.
In my view, as a half-glass full Brexiteer, this will recover once any deal and the situation of EU nationals is better clarified but that might take a few years.
This, of course, may be beneficial for recruiters - especially anyone specialising in staff recruitment from outside the EU - because companies might be more desperate for staff.
Jamiemp, you appear to know about the marine industry, but your last comment proves you haven't got as far as understanding SRT's investment proposition. Perhaps read more, then come back with your opinion? You may still think it's a waste of money, but at least you will be judging the company critically. AIS hardware sales to shipowners is NOT the point of SRT.
You are right, I am being facetious. I jokingly refer to one of the pillars of the traditional 50k odd merchant fleet.
SRC and Finncap make constant references to a target market of "26 million" smaller floating objects, like fishing vessels and small pleasure craft, via VTS etc. They could be attempting that with propositions to special interest groups like coastal authorities and now the UN's fishery monitoring initiatives.
However, to me at least, I don't see what their USP is in an extremely fragmented, global market. How is this more credible than me saying I am going to sell 7 billion hats?
Hi back2value. I had another pass at SRT, based on the surprising amount of interest. It has been some time since I've looked in detail. The main issue for me, is a valuation that appears stretched as it stands. Extremely stretched. The "growth opportunity" driving it is only really broken down in detail in a note by its house broker in what is a frankly ludicrous piece of "analysis". The core business of AIS chipset technology is fine. No argument about that.
Where is the growth?
Class A AIS: completely saturated. That seems to be accepted by everyone including SRT.
Class B AIS: only rarely mandated. Where mandated, very limited uptake and poor enforcement. Example: US Coast since 2015 but no increased take out. (Source SRT's own reports).
But the recent technical advances?
How did SRT's boffins shrink their Class B AIS from the Class A "shoebox" size? Simple: the statutory requirement for a Class A AIS includes a screen. Class B does not. They're smaller and cheaper because there's no display.
But coastline monitoring? The authorities currently use archaic devices known as "Radar". SRT to the rescue!
Is AIS superior to Radar?
Well if the transponder is fitted and functioning, it's sending an active signal. As opposed to Radar which is waiting for a reflected radio wave that can be blocked by various interferences. You can't get away from needing to fit a transponder on the boat though. And given the target market seem to be terrorists, smugglers, unlicensed fishermen... you can see why there may be an issue.
In any case if you relied on it fully and the transponder broke (or the naughty men turn it off!), your ship vanishes. Good old fashioned Radar would pick it up.
But what if they were combined?
Wait, the already are. An AIS overlay is standard on any Radars. You'll see a random sample of major brands here:
http://www.nauticexpo.com/boat-manufacturer/radar-ais-31265.html
But hold on Jamie. What if you could overlay all that onto some kind of electronic map of a coastline. That would be really useful. And include all sorts of other data like wind, tide etc. That would sell right? You could call it an Electronic Chart Display and Information System (ECDIS).
Sounds cool! Like this:
http://www.nauticexpo.com/boat-manufacturer/ecdis-19959.html
But if ECDIS is so well established. Why don't ECDIS manufacturers sell VTS systems?
They do:
http://www.gibraltarport.com/node/455
Straits of Gibraltar. Its no Galapagos, but maybe some holders have heard of it.
More:
http://maritime-executive.com/pressrelease/Major-KONGSBERG-VTS-Contract-with-Norwegian-Coastal-Administration
http://www.transas.com/transas-secures-two-prestigious-vts-contracts-in-bulgaria
Transas and Konsberg are market leaders, but there are many, many more.
But SRT have an advantage don't they?? No: the signal from any AIS is universally decodeable (source: SRT's own spec's and of course the statutory requirements). But if that were true, why can't I just Google AIS signals and see them all for free.
You can:
https://www.google.ca/search?q=ais+tracking&rlz=1C1JZAP_enES701ES701&oq=ais+tracking&aqs=chrome.0.0l6.2716j0j4&sourceid=chrome&ie=UTF-8
All right. So its not completely sewn up. But mighty SRT can close a series of lucrative deals in 160 countries (Finncap) and what are "a spider's web of complex relationships" (Finncap), that "involves years of discussions and preparation.".
After all, they are:
"Based in Midsomer Norton near Bath in Somerset, and with another office in Cardiff, the company employs 55 staff, predominantly engineers.".
And their only competitors "include Raytheon, Saab, Lockheed Martin, Signalis (Airbus), Elman, Selex (Finmeccanica/Leonardo) and Harris which has partnered with exactEarth to deliver satellite-based AIS solutions.". Not to mention industry heavyweights Transas and Konsberg as above.
Oh well. Keep on trucking SRT. At least there's enough cash to wait out the big deals:
"The group finished FY 2017 with net cash of £0.8m. Clearly with working capital demands, the cash will require careful control. We anticipate a positive working capital contribution in FY 2018 due to an unwinding of the trade debtors position however as always timing is uncertain and there may be a low point at the interim stage, building to c.£1.5m by the year end."
Hmmm, what trade debtors position?
"Trade debtors was notably heavy at the year-end at £7.9m, up from £4.1m at September. We highlight this includes £2.2m of receivables from a project more than a year old but not impaired. The auditors have noted this as an emphasis of matter; however, management believes this trade debt to be fully recoverable, pending the customer’s complex sign-off process.".
Ah OK. Cheque's in the mail then. They'll just have to bring the world to Bath in the meantime.
Where do I sign up?
Sorry, one more from me - just noticed this gem when revisiting a broker's note on SRT:
"AIS has multiple applications in the maritime market, ranging from interest and entertainment to security and safety. Operators of leisure craft might use transceivers to monitor passing marine traffic around them for interest, giving far greater information than radar returns."
Not going to open the Greek's purse strings I am afraid.
Paul. I think you are very wrong on the outlook for EU nationals who work here and the impact it will have on UK businesses.
- there is already anecdotal and documented evidence of a reduction in the number of EU nationals wanting to move here to work because of a. Uncertainty and b. we as a nation have said you are not welcome here.
- the jobs market is not static. The EU national making pizzas in Domino's moves on or returns to his home country, who replaces him? In 10 years time all those 20/30 somethings will be 30/40 somethings who will replace them? It can't be Brits, there aren't enough of us.
- "I don't think there will be any trade barriers, because neither side wants them." I just can not see the EU 27 giving us all the trade benefits of being a member of the EU without us being a member of the EU. I really think this is wishful thinking.
- "All the doom-mongerers on this issue are mainly just trying to justify their own position, by continuing to argue that Brexit was a terrible mistake." I think the reverse could equally be true?
To bring this back to the context of investing, i don't think now is the time to bale out of UK stocks per se, but I will certainly be adding likely impact Brexit to my investment criteria before buying a stock or when reviewing when to sell.
Have a good weekend.
Kind regards
Michael
The "generous offer" that Theresa May has made isn't in writing so there isn't a lot of detail but there are conditions such as:
- Only applies to EU nationals that have been here 5 years
- A reciprocal agreement from the EU is required.
So it isn't quite as it is being reported in the press - but that is hardly a surprise.
The EU on the other hand put an offer in writing to the UK over a month ago. It is here:
https://ec.europa.eu/commission/publications/position-paper-essential-principles-citizens-rights_en
Paul, I cannot agree with your last para. Any substantial and worthwhile trade deal with the EU will still leave us under the jurisdiction of the European Court as arbiter of such a treaty. However I cannot see that the EU will agree to such a deal that gives the advantages of the EU without being part of it. Why would they want to show the EU as not relevant ? Politics trumps economics and we have not got many good cards in any case. What we would have to give way on to obtain a good deal IMV would be equivalent to not leaving the EU at all. (except of course we would no longer have a say in the rules)
I see Blur are in possible terminal trouble. They lost my confidence some time ago when they were massively front running revenue and had to restate and then restate again their already filed accounts. This company was very hyped some time ago.
Regards
Andrew
the level of ignorance about SRT and its products here is staggering. Don't posters bother to do any proper research before slagging off a company that wins orders because it produces the best equipment on the market?
Low tech? Back up your sweeping statement with some facts.
Publicity stunt? You have to be joking. Google AIS tracking is no use at all without AIS on boats nor will it help you to identify those boats that should not be there or those boats that are there but are not transmitting their location. A proper job means equipping local fishermen and installing a monitoring system that does more than just show every boat on the water and leave you to figure out what to do with all that info
None so blind as those who refuse to see.
Well said, the Company looks good to me.
Andrew
Glad you are raring to go today Paul as there seems plenty of paperwork to go through in the Animalcare reverse takeover. I just had a quick look and I notice there is plenty about Ecuphar's EBITDA and cash generation rather than profits, which perhaps strikes a note of caution for me. It also appears that Ecuphar's profit margins are not as good as those of Animalcare. Bearing in mind that Animalcare was doing quite well without Ecuphar, my initial impression to the financial justification of this reverse takeover is a bit lukewarm but would be interested to hear your view. From a strategic viewpoint, there will be economies of scale and cross-selling opportunities but I note that neither company has good access to the huge US market which they both clearly need. Of course I am ignorant of any impact on the share price at this stage and I am sure the share price reaction will tell us more.
I created a seperate thread about Animalcare (LON:ANCR) if anyone is interested in the main board.
http://www.stockopedia.com/content/animal-care-reverse-takeover-195959/?submitted=1
Just a comment on SRT (lon:SRT) from someone in the industry: AIS transponders and several other of their products are very basic, low tech devices. As in WWI era technology. There are dozens of suppliers around the globe. Demand is 100% driven by the need for statutory compliance (a one off for each ship) and there is not and never will be a ship owner willing to pay a premium for one device over another. I see they have the UK VTS systems - basically air traffic control for sea lanes - a very finite and chronically underfunded market.
Completely different from Inmarsat for example, which was the market leader through a boom in leading edge, value add communications devices in the maritime industry.
Thanks for your insight regarding SRT Marine Systems (LON:SRT).
Given the low level tech being employed, would you say it's a good sign that SRT was chosen for this deal? A UN organisation stamp of approval is surely not a bad thing as well?
Not really, the UN's maritime and anti-piracy authority is the IMO. Not the FAO. This looks like a publicity stunt from an aid agreement. It has nothing to do with anti-piracy. AIS is a transponder, so they could do nothing more than look at them on a screen.
Google AIS tracking and you'll find a dozen websites that provide this already.
Only a public funded body would put out a contract like this: a business would hire a freelancer to write an app or API in a couple of hours.
The transponders themselves must be very low margin - since there are so many alternative suppliers. They're also only required for civilian vessels, like all SRT's products, so there will never be Defense style contracts coming out of this business.
Having read this specific RNS now, it seems disingenuous to imply anything material has happened.
Of course, if you had read it properly, you would have noticed it was an RNS non, and therefore not at all disingenuous.
You are absolutely right, that part was completely glib and inaccurate - I had only glanced at it to provide a technical response to the previous poster.
"uninspiring" I should have said.
Since you claim to be in the industry you will be aware that SRT "re-invented" the modern AIS devices we have today. Beforehand an AIS transponder was the size of a house brick. Now the circuitry is the size of a credit card. That has enabled a massive price reduction and spawned a whole raft of related products using the same technology platform.
Asserting it is WWI technology is laughable. Did they have PCB's in WWI? No they had valves or was it clockwork?. Did they have computing power built into circuits to control the functionality? Don't be daft. It's nonsensical rubbish from someone who clearly knows nothing about SRT's technology.
What makes SRT the best is industry-leading innovations like:
- significantly greater satellite detection rates on Class B AIS transmissions than any competitor
- lowest power consumption on the market for AIS Aids to Navigation (AtoNs)
- patented reversible time domain duplex (RTDD™) transceiver technology.
Developed entirely in-house by SRT’s world-class radio technology engineering team RTDD is integrated into SRT’s AIS transceivers to simultaneously reduce cost and size whilst also improving performance.
The technology enables a specific single RF architecture to be used simultaneously for both receiving and transmitting through electronic reversing of the RF chain between receive and transmit. This is achieved through a complex combination of intelligent selection of intermediate frequencies and ultra-fast switching.
- GEOVS display system
Dynamic-3D visualisation fuses multiple live and static data sources to create a real-time true 3D display. With huge amounts of data now available from multiple sensor systems, the challenge for display and management systems is to present this data in a format that is genuinely useful to the operator. GeoVS Dynamic-3D technology instantly and continuously combines live data streams from multiple sensors such as radar, AIS, tides and weather, with data embedded in electronic charts to create an accurate and live digital 3D view. It is called Dynamic-3D because unlike any other 3D visualisation, GeoVS Dynamic-3D allows the operator to move completely freely around to view any object from any perspective with complete freedom.
This is why SRT has won orders for its equipment from Bahrain, Saudi Arabia, Indonesia, Panama Canal, Galapagos Islands, in addition to dominating the market for individual sales to boat owners via a preponderance of marine electronics brands who choose to have "SRT inside" their branded equipment.
To suggest SRT are selling basic technology just shows how little you actually know.
Making things smaller hasn't been revolutionary since the walkman.
AIS has been around since 1990 and I don't think anyone could argue SRT or anyone else has performed any miracles in scaling it down. The bridge of a ship has plenty of brick sized objects on it and plenty of room to put them in.
I have no doubt they will be the market leaders in terms of satellite pickup. Indeed it is amazing how far that has come over the last few years. But the reality is that this is not mandated and very few owners no or care for one level over the other.
Their data management and visualisation I have no clue on. I would be surprised if it can compete with the likes of Konsberg or even, as I originally said, what an independent developer can create. The great maritime nation of the Galapagos Islands does not convince me.
The reference to WWI is the type of transponder REQUIRED by AIS legislation. SRT use this very basic platform to try and build value add products. My personal experience is that necessity, not innovation, drives shipping. For a ship owner seeking to comply with international regulations, there are numerous offerings from any electronics providers with one toe in the maritime sector.
Its just one man's view. I've had a look. I rode Inmarsat from fledgling to FTSE 100 and thought there was another chance here but its not for me. Good luck all SRT holders, I am genuinely happy to be proven wrong.
Paul, any thoughts on the proposed buy-out of Hornby? Hornby (LON:HRN) It doesn't look a very good deal for private investors.
"Phoenix Asset Management Partners said Friday its takeover offer for model railway and collectibles retailer Hornby PLC has become unconditional, after it purchased shares to bring its holding in the company above 50%.
Phoenix said it completed its purchase of 17.6 million shares in Hornby from New Pistoia Income Ltd at 32.375 pence each, bringing its stake to 55% and triggering a mandatory cash offer for the entire company.
The offer is at the same price of 32.375p per share, valuing Hornby at GBP27.4 million, and is open to acceptance until July 14."
I see a non-exec has resigned from Gattaca this morning. No reasons or information in the RNS at all. Anyone heard anymore rumours on this. Would I be right in thinking less potentially significant as it was a non-exec?
Defenx (DFX) issued a trading update yesterday which seems to have slipped by without comment.
It appears that things are going well and management confirmed an "in line with expectations" , but there was also an appearance of our old friend "second half weighting".
Although in the sexy "cyber defence" sector, it does have a net profit (minimal software capitalisation) and a P/E of only 5.4 so it ir is not experiencing any irrational exuberance.
Any thoughts from you?
Hi Paul,
Any chance of a few tips on how you research companies using Stocko I picked up the average shares in issue tab from one of your previous articles to help spot companies that issue shares like confetti.
Thanks
I'd like to know more about the Animalcare (LON:ANCR) reverse takeover too.
Paul,
I wondered if you would be prepared to look at events for REC Record Holdings a currency manager. I do appreciate you don't like these financials. However I bought a holding back in 2014 on the back of your liking of a strong Bal Sheet. It has performed well with a rock solid dividend. Now it has built up enough cash it is changing its cash approach, offering a special div and a tender offer at 44.75p. I am inclined to hold given the variation in currencies one feels it must be in demand over the next few years. But the Non Exec Chair is taking up the tender all be it he owns a lot of stock. So wondered if you have experience in this sort of offer and what your thoughts were?
Camtab REC was featured in Shares mag this week as a tip. You might want to get a cooy
Thanks tic
afternoon Paul....how about the Animalcare (LON:ANCR) reverse takeover ?