Srt Marine Systems Share Discussion Threads

[lavalmy] 23/7/2018 11:56

finncap's take:

'FY 2018 has been a challenging year for SRT, as group revenue fell to £5.3m (2017: £11.5m), leading to an adj. LBT of £4.0m (2017: adj. PBT £1.5m). Both divisions underperformed against last year; the Transceivers business suffered a 12% fall in revenue due to new product shortages (now corrected) but the Systems division generated revenue of just £0.3m (2017: £5.3m). The value in SRT lies in Systems, which holds the enormous promise of £400m of sales opportunities; however, it is subject to the inevitable delays and setbacks of major infrastructure projects in developing regions. Early in the year, a delayed Coast Guard contract led to a £1.5m exceptional impairment of trade debtors. That has been followed by the cancellation of a €28.5m SE Asian contract due to a change in funding, resulting in £8.2m of revenue written back in FY 2018. Assurances from both end-customers lead us to anticipate both will proceed in future, and our confidence is underpinned by the real need for these solutions by authorities around the world for both economic and security purposes. With this loss, SRT ended March with £2.3m net debt but since then it has refinanced with a £3m placing in May and has a £10m loan note programme largely undrawn.'

I note that they think Indonesia is not dead. Also, SRT did not write of the amount due from them, but provided against it in full - a slight difference in outlook.

[countryman5] 23/7/2018 11:53

LAV. Well informed comment.

This is clearly not for widows and orphans. If and when the company is achieving £50 million a year T/O and £20 million plus PBT the shares will not be changing hands at 26p. At present there are no institutions with over 3% and a major slice of the company is held by a few tight hands who probably know the company in depth. If someone else does due diligence and buys into the story , they will need to be patient to get 5% or more and will move the share price accordingly.
The market likes visibility of earnings and as soon as multiple contracts are signed there will be visibility for several years. There will also be the recurring satellite data sales and growing EMTRAK and OEM sales.
The company will be generating substantial cash which will need a home.

[lavalmy] 23/7/2018 11:51

Sorry got it a bit wrong:

'SNCF Station, 14 rue de Dunkerque, 75010 Paris, France'

[philburt] 23/7/2018 11:47

LaV - many thanks again for laying out your take on the situation.

"SRT did even set up a French subsidiary, of all places at Dunkirk railway station in case of a quick retreat" - Comedy Gold, mate!

[yump] 23/7/2018 11:31

When someone just posts a couple of lines and then say they rate it a 'strong sell', you know its not worth listening.

Who gives a toss what someone 'rates' something as ? Not even an analyst posting and they're useless as predictors as well.

fwiw
I rate SRT as a "hold, cos I can't think of anything better to do at the moment and I've learnt that sitting on hands until the fat lady does or doesn't sing, is better than guessing when she might or might not appear".

I have this feeling that I'll never make the elevated world of being an analyst.

[lavalmy] 23/7/2018 11:18

Clarkey26

Good points. I, too, used to be worried that one of the reasons for delays in conversion to contracts was related to SRT, or more correctly, their sales team, touting as yet undeveloped improvements to their system and customers then waiting until those improvements are not only done but available for assessment. Possibly that still holds true with some of the pipeline, but I think that most have done evalutations of the current product. Delays in conversion are more likely to be down to the range of reasons that SRT usually trots out, as well as their lack of understanding of the customers' actual procurement processes.

This is particularly pertinent with regard to the Philippines project, where SRT are, believe it or not, very fortunate that the sub-committee of Neda approved the new project scope just in time for the full board meeting of Neda, who have not met since, nor are there indications that they will any time soon. Whatever the length of time it will take to renew the contract, it would have been at least six months more had the sub-committee not agreed to look at the project back then. Of course, SRT are no experts on Philippines procurement or that of any other country and can only rely on what they are told by their proximate customers, who in turn are probably relative novices as well.

A further point is that SRT often claim that customers have to have 'budgets' for the projects before they are included in the pipeline. I think it would be more accurate to say that they have in mind a $ amount for a system, rather than an actual budget as in funds set aside.

More generally, the two delayed projects are extremely different in how they have come about. The first was out-of-the-blue, brought in by a small Swiss company with little experience in the sector, for a total amount probably double the market value of the entire project ($400 million), completely vague as to what the customer wanted except for spending up to $400 million, in a country renowned for corruption particularly in government procurement. Of the three Indonesians who showed up at Qnective, the head of Bakamla was replaced prior to SRT's involvement and there have been no suggestions of wrongdoing by him. One of the other, head of the regions, had to resign almost immediately after showing up in Zurich because of corruption. The third, currently Minister of Justice, is under investigation in the largest scam to come to light in Indonesia, an e-ID card scheme which was approved when he was on the parliamentary committee concerned. The new, replacement, head of Bakamla was the one who called a halt to the SRT project. Subsequently, members of Bakamla arranged a contract for the supply of satellites for marine surveillance from a German company and were caught taking back handers. The new head stands accused as well and the only thing protecting him is the fact that the middleman between Bakamla, parliament and the supplier has disappeared. This scam was uncovered in December 2016, whereas SRT's project was delayed in March/April of that year, shortly after the new head was appointed. I can only assume that he wanted to make sure he got a cut of a clearly inflated contract, rather than what SRT told me which was that he wanted to make sure that everything about the contract was squeaky clean because his underlings had been caught redhanded - this had not occurred by the time the contract was delayed.

Now, I am not for one minute suggesting that SRT are involved in this. This is between Qnective and the Indonesians, and SRT were merely providing the system and had done a lot of work scoping what had originally been a very vague project. They are also very involved with other bits of the Indonesian government on other large projects. However, the basic infrastructure of AIS etc was supposed to be handled by Bakamla, who, in turn, were expected to share the output of that with the other agencies. Whether Bakamla has the political clout to reactivate the project, given the cloud over agency, remains to be seen. Joko is very keen on having centralised coast guard and Bakamla was to be the precursor of it. There are new presidential and parliamentary elections next year in which he is expected to do well. He might be in a better position to reshuffle personnel who are a hindrance to his goal.

The Philippines is a different kettle of fish. The project was to be funded by the French government and to be won by CLS. SRT got on the case and persuaded the Philippines that they had the better system. SRT did even set up a French subsidiary, of all places at Dunkirk railway station in case of a quick retreat. The Philippines clearly wanted SRT's VMS and, if possible, the French funding. That has not worked out. They are paying for it themselves and, according to their rules and as stipulated by the NEDA board in their approval, the BFAR must go through the normal tendering process.

[eagle eye] 23/7/2018 10:54

orinocor,

Re post 7159 'ongoing solvency issues now'

Year-end cash balance at 31st March was £1.4m, but SRT announced a Placing (12m shares @ 25p) which raised £3m on 30th May.

[clarkey26] 23/7/2018 10:15

I think it ultimately comes down to this is the year they must deliver not only for shareholders but to demonstrate the model works and to survive longer term. I don't think that sounds dramatic, they have raised cash, taken on loan facilities, increased development expenditure etc and now must start generating income against that.

From a confidence perspective two significant contracts being delayed (?!) is not good and I think shareholders will be wanting to see cash in the bank not just signing in future before trust can be truly restored.

For me I have a niggle that maybe the technology is not quite where it needs to be and the spending etc is to try and meet additional customer expectations or maybe promises from SRT it can be developed and I wonder if end customer wants to see this before will sign, hence increase spend v lack of signing.

Time does seem to be a challenge now if want to avoid another fund raise, hence the accounts and statement which go with them which I think is a good reflection of position from the auditor.

Fingers crossed but becoming a bit more of a gamble.

[orinocor] 23/7/2018 09:22

yes LaValmy you are right. Obviously the £400M sales pipeline needs to be taken with a massive pinch of salt based on the track record so far. It's very irresponsible of them to even mention a figure like that.

[trident5] 23/7/2018 09:18

I think ST is wrong to say that they will be measured on the profits they make - from now it's all about cash generation.

[lavalmy] 23/7/2018 09:13

orinocor

I think you are confusing the Indonesian contract (the postponment of which was announced 31 July 2017) with the one announced last week, which was the Philippines. The latter is expected to start once the 'new' procurement process has been done.

[orinocor] 23/7/2018 09:11

ongoing solvency issues now

--- As at the year-end our gross cash balances were £1.4 million (2017: £1.8 million). In the light of the historical challenges with contracts, we have emphasised the future risks around payment timings from large system customers, specifically our existing contract in the Middle East and a going concern risk in the event that these are further extended and or not closed. Recognising these issues, during the year we entered into a £10 million loan note programme, of which £3.15 million has been drawn-down at the date of this report with repayment over a three year period.

[orinocor] 23/7/2018 09:09

Somehow this sounds a lot more negative than what they released last week

--- Although we received written re-assurances from the customer, including a letter from the end customer explaining that the delay had arisen due to a lack of budget availability and would re-commence in the future, since in this instance, SRT was not the prime contractor and thus not engaged directly with the end customer, we decided that given this lack of visibility it was prudent for us to write down the full value of the project. This was announced to the market via an RNS on 31 July 2017.

[amt] 23/7/2018 09:04

The sales pipeline was 400m? a few years ago if I remember correctly. So doesnt mean much.

[fft] 23/7/2018 08:24

Zipstuck. If you read every TU or results over the last 6 years you would find there has been excellent progress and the VSP keeps on increasing, but, alas, to date, this has not been through in either revenue, cash or profits.

[pugugly] 23/7/2018 08:00

tone very subdued - A lot of humble pie - OK sunshine possibly ahead BUT (imo) nothing certain - A binary bet tipping point is my guess - If no significant contracts within the next 6 months then possible low ball t/o by private vulture or a major as a bolt on OR if contracts actually materialise then name your target share price

[zipstuck] 23/7/2018 07:57

More imporetantly


"However, I am pleased to report that
there has been significant progress with a number of specific
large system sales opportunities towards contract signing."

[fft] 23/7/2018 07:51

I noticed that the sales pipeline is now over 400m GBP. Is that supposed to sound better or worse than when it was only '170m' a year or two ago ?And, I presume the 1.5m write off is the Indonesia contract from last year ? That sounds like either ST has been told what to do, or it really is over.

[orinocor] 23/7/2018 07:42

Talk about jam tomorrow. We're already 4 months into the financial year, where's all the orders?

I rate these shares a STRONG SELL

[owenski] 21/7/2018 11:46

Posted a link about an unrelated company to SRT.

What is of interest is that it's another 'tech' export company that is reliant on government budget and procurement allocations.

As such these budgets and projects can and do change without notice.

The reason why I posted the link is to show these kinds of problems are not specific to SRT but is generic and may help give a bit of understanding and perspective.

The pertinent part is about 6m15s in. Also notice that the company was accommodating and that the 'good' relationship is maintained and that further business is still expected. There is a lot of detail in this short clip that helps to understand the nature of dealing with these kinds of contract.

SRT will always have this potential situation but the road map is still intact and must be viewed in such light. SRT have evolved to become a national maritime systems provider, occasional speed bumps go with the territory.



Regards

[lavalmy] 21/7/2018 08:06

The Leonardo thing sound good. It relies heavily on exactEarth's AIS data (as stated they signed an agreement at Farnborough). exactEarth make no mention of it at all (compare the HS Markit annoucement). They normally make a fuss about the opening of a crisp packet...

Data fusion is the way to go, though. As yet, AIS is the only open method of identification (the VMS and LRIT data mentioned is only available for certain fishing boats and then only if the country in question makes it available). Many of SRT's projects involve encrypted signals, so those will not be available. If you can't identify a vessel, it makes it difficult to determine what is unusual behaviour for it, based on its history, of which you will be ignorant as well. Yes, you can identify 'unusual' behaviour in general, sailing at particular speeds, in particular patterns etc.

[pugugly] 20/7/2018 20:40

A varient on the theme and not sure if a potential competitor or complementary - Could be both

A real-time satellite-based surveillance of ships has gone live


Possibly more of a competitor for ISAT.

However VERY VERY much larger and profitable -

[owenski] 20/7/2018 17:59

Tends to suggest the market is staring to see the bigger picture of where SRT is heading, short term noise is just that imo.

[lavalmy] 20/7/2018 12:40

Don't bother much with that myself, though no doubt it could be profitable given the oscillations we have seen over the years. At some point, of course, it will not hold true.

Incidentally, it seems that there is a (new?) purchaser in volume, as there was last week at higher prices. Possibly one of those brought in to the fundraising? Certainly someone who takes the cancellation of 60% of the year's turnover in their stride - it was flagged in the document, but perhaps the risk (and explanation) was pointed out more vividly face-to-face. We diehards are used to this sort of thing, of course. But as boadicea says, carnage would be more usual in ths sort of case.

[boadicea] 20/7/2018 12:04

I think the market has been relatively lenient in its view of SRT over the past week. Given its history there could have been total carnage so the principal holders of the stock, some of whom (and not only Valmy or other posters here) will have superior knowledge of the underlying situation, are clearly convinced that it will eventually come up with at least a modest proportion of its supposed VSP before financial time runs out.

The only basic strategy I have been using is to keep the holding value more or less constant - i.e looking to add when it goes ~15% below a certain figure and selling when it goes ~15% above. Currently this would determine 24.5p as my buy price and 33p as a sell so I am sitting on my hands. Of course the strategy is subject to review based partly on the excellent background supplied by contributors to this thread, partly on waiting for directional trends to settle and also taking a view on the likelihood of outside interest in the technology - e.g. a t/o bid or major partnership deal.

So far this has worked to give a break-even price of 14p. However NAI applies and the stated strategy has left me with losses in some other cases as well as good profits in others!