Synectics Share Discussion Threads

[kombimatec] 28/2/2014 15:47

The slip in price may make them a target. ADT?

[grahamg8] 26/2/2014 19:04

All good and well. But Westhouse seem to like what they have and raised the target price from 545 to 675. So it's all a bit of a conundrum. Revenue up, profits up, margins up, divi up on the one hand but cash down, order book down on the other; and share price tanked.

[dasv] 26/2/2014 12:46

copy and pasted from that link which can be found by googling...

Bit of a harsh valuation imo (re likely earnings 2015) and doesn't take into consideration the benefits of re-structuring and positioning for higher value projects. but I'd agree on some/most of the points below.

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Synectics (LON:SNX)

This is a CCTV group that I've been following for years, since the days when it was called Quadnetics, a rather nice name I thought, so it seemed a backward step changing it to the difficult to pronounce Synectics.

Their final results for the year ended 30 Nov 2013 are out today. Whilst the results look OK, the outlook and reduced order book are a concern. The order book was £28.1m at 30 Nov 2013 (2012: £36.9m), which is a material drop of nearly 24%. So the next step is to look for what the current order book is, to see if it has risen in the last (nearly) three months, so I am skim reading the narrative to locate that.

The Chairman's statement gives a pointer;




...We expect the current year to be focused on consolidating these significant organisation and infrastructure investments. Therefore the Board expects results for the current financial year to be at a similar level to 2013. Further details are set out in the Outlook section below.



Unfortunately, the outlook section dodges the issue of what the order book is currently standing at, so I can only assume that there has not been any improvement. If there had, then the company would have mentioned it, surely? They say;




Delays are continuing to some extent, but bid activity for large projects in the oil & gas and gaming sectors remains solid, and an increased pace of sales is anticipated from several new products being launched in the second quarter of 2014...

...The pattern of our current order pipeline suggests that trading will be significantly skewed towards the second half.



Oh dear, there is the dreaded H2-weighted results expected comment. That's not good, as it means a heightened risk of a profit warning if they do not recoup what looks like a gap in the order book.

The market has clearly cottoned on to this, and the shares opened down about 20-30p, but have in the last few minutes really nose-dived down 105p to 435p. Ouch. Nothing to do with me, as I haven't published anything yet, am just about to hit the publish button now.



So this morning's pretty savage market reaction to Synectics wobbly-sounding outlook is a reminder that when shares are priced to perfection, there isn't any scope for disappointment. That's why I am saying no to so many shares which I consider over-priced at the moment - it's all about risk/reward. If you are being asked to pay up-front for good performance over the next year or two, then you have little upside gains to be made, yet you have all the downside risk if something goes wrong. That's just a lousy investment proposition.

What I look for is assymetrical risk/reward the other way around - i.e. where a share is priced with expectations of poor performance, yet there are early signs of them doing well. In that situation you buy at a price where disappointment is already factored in, so you get the upside profit opportunity thrown in for free.



Back to Synectics, it delivered strong underlying diluted EPS of 32.6p for 2013, up 29% on prior year. So if we take the optimistic view, and assume they will deliver the same EPS for 2014, then at the current share price (they've bounced a little to 450p) that puts them on a PER of 13.8. Not exactly a massive bargain, considering that's probably the top end of likely performance for 2014.

Also, by my calculations they are inflating the underlying EPS figure by stripping out amortisation of capitalised development spend, which is not on in my book. So personally I'd feel more comfortable valuing it on the diluted basic EPS of 29.4p, and putting that on a PER of about 10-11, due to the risk of another profit warning.

Note from the cashflow statement that under investing activities, £1m of development costs was capitalised. It's always worth checking for this, as those are cash costs that have by-passed the P&L, hence increasing adjusted profit (which excludes the amortisation charge) by that amount.

On the positive side of things, Synectics passes my Balance Sheet testing, and had net cash of just over £1m at 30 Nov 2013. The total year's dividends are up from 7.5p to 8.5p, so at today's reduced 450p level that gives a dividend yield of 1.9%, which is nothing to get excited about, but better than nothing.

Remember that this type of business is lumpy, as it's project driven, and as far as I'm aware there isn't much in the way of recurring revenue. That makes it higher risk, and shouldn't be on a high PER, unless it has developed some blockbuster product that will drive rapid growth. I'm not aware of that here, so suggest that the rating should be modest. Something like a PER of say 10-12 is about the right price in my view for this type of business.

Therefore I think a price in the 300p ballpark is the sort of level that would get me interested. Even after this morning's drop, it's 50% above that price, so I'm not interested. Risk/reward is still unattractive at the current price, despite the now 16% fall (it's a moving target!) this morning, in my opinion.

Remember that sentiment drives share prices in the short term, but its cashflow & dividends that ultimately determine the long term value. I think sentiment is taking a lot of share prices too high at the moment, and that means heavy losses eventually for people who over-pay.

[ramridge] 26/2/2014 09:58

Well I do believe there is censorship going on. Anyway it is a website that rhymes with Encyclopedia or Wikipedia.

[ramridge] 26/2/2014 09:50

Paul Scott's analysis in - is for me spot on.

[davebowler] 26/2/2014 09:34

Westhouse;

Buy from Add













SNX.L / 540.0p / £95.55m / TP: 675p













Event: Results issued













Likely % change in earnings forecasts: Mixed














Final results for FY2013 show further progress in margin expansion. Adj. PBT of £7.1m was in line with our forecast on sales of £82.4m (vs. £84.0m). Adj. diluted EPS were up 29% to 32.6p (31.8p) and the DPS was 8.5p. The focus on securing larger contracts in the six chosen market segments is bearing fruit. Management has stepped up investment (R&D and infrastructure) to deliver the next phase of growth and despite lowering adj. PBT forecasts for FY2015 and FY2016 we maintain our 675p TP and upgrade to a Buy (from Add) rating.

[ramridge] 26/2/2014 08:53

Yep tried to sell on open but no deal. My reading is that with the market being frothy, any co. with news that does not tick all the boxes and more is punished severely. Look at the drop as consisting of two parts, the first part normal reaction to slightly disappointing results and a much larger drop due to unsustainable market conditions.

[diggulden] 26/2/2014 08:31

Any thoughts on current cash and order book? I was expecting it to look healthier for 2014.

[philo124] 26/2/2014 08:25

Ok read the whole statement now sat in Spanish café where the noise is above the uk health and safety level- 6 women talking.

[valhamos] 26/2/2014 08:22

Same here beckaroo - disappointing outlook does not justify current P/E rating. Not able to sell at open so will hold for now.

[philo124] 26/2/2014 08:21

Very disappointing fall.

[5oletrader] 26/2/2014 08:20

Unjustified drop.

[dasv] 26/2/2014 08:20

"Taken together, these factors lead the Board to expect another good performance in 2014, with results likely to be at a similar level to 2013. The pattern of our current order pipeline suggests that trading will be significantly skewed towards the second half"

I take that to mean no EPS growth and some weak/negative news flow in H1 2014 but things improving in H2.

Also 29p is a slight miss on forecasts.

Year Ending Revenue (£m) Pre-tax (£m) EPS P/E PEG EPS Grth. Div Yield
30-Nov-13 84.01 7.11 32.33p 16.7 0.7 +23% 8.75p 1.6%
30-Nov-14 94.29 8.40 38.03p 14.2 0.8 +18% 9.50p 1.8%
30-Nov-15 99.33 10.04 45.45p 11.9 0.6 +20% 9.50p 1.8%


"Financial performance for the year was held back by the profile of our multi-year managed services contracts being more weighted towards early years, where lower margins are usual, and by delays in closing out a large integration project. The latter issue has been closely addressed as part of the organisational and MIS changes referred to above and should not recur."

I think the market is focusing on the negatives in the RNS (see above) but there are lots of takeaway positives too. 2015+ looks good for Synectics. I had to sell though on open (had to join queue to sell - no market) because I fear the share price will languish in 2014. I will keep the share on watch and read RNS's with interest.

[beckaroo] 26/2/2014 08:17

Its the reduced order book and them saying profits next year will be the same as this year but more skewed towards the second half.

I tried to sell at the open but no market so reckon I will hold at these prices.

[awesome45] 26/2/2014 08:14

6.6 PBT below consensus of 7.1

[philo124] 26/2/2014 08:10

And some peeps new before results.

[philo124] 26/2/2014 08:10

Order book?

[philo124] 26/2/2014 07:54

Good. 38p 2014, 45.5p 2015. In Sipp so will continue to hold.

[philo124] 19/2/2014 13:23

Disappointing move ahead of next week's news.

[dasv] 19/2/2014 12:52

thanks - yes prelims will be 26th Feb

20 January 2014

Synectics plc (AIM: SNX), a leader in the design, integration, control and management of advanced surveillance technology and networked security systems, will announce its preliminary results for the year ended 30 November 2013 on Wednesday 26 February 2014.

A meeting for analysts will be held at 10.00am on the day of results at the offices of Buchanan, 107 Cheapside, London EC2V 6DN.

For more information, or to register attendance, please contact Buchanan on 020 7466 5000

[old tyke] 19/2/2014 12:27

Finals 26 Feb, actually.

[dasv] 19/2/2014 12:22

Vol is v. light

Prelims generally early March.

No idea re: share price move