Brokers note yes. Half year figures to Dec 31 2024 will come much later obviously. |
Half year figures and brokers note next week? |
Thanks LaV. Doesn't sound all that encouraging, does it - but in practice I guess we have only a binary choice, sell or hang in there. For better or worse, I'm going for the latter. I still think raising a judicious question at the AGM would be worthwhile. |
 pldazzle
No doubt SRT has not the experience that their major competitors have in all this and I am sure that they (competitors) include clauses to cover cost inflation, delays etc. The only thing I have heard from SRT is that they put in a contingency in their pricing. Margins have not been as expected though, the Saudi first phase for one and the last bit of the BFAR contract which turned in a loss yet to be adequately explained.
But you must also think of the pre-contract phases which are also lengthy. In Indonesia, the contract with whom seems to have sparked your concerns, Bakamla first had to get a budget which was and is fixed at $180 million. Given that size relative to their regular budget (almost three times their annual), they must have had some convincing to do to get it. And that would surely include what they could get and why they needed it. So that specification feeds in to the $180 million. If I remember correctly, the project was in the Blue Book for a couple of years and the Green Book for a year or so before the contract was signed, so the broad parameters of what Bakamla thought it could get for $180 million were set five years or more ago and those were sold to their political masters. |
pldazzle
"there will always be a tendency for delays in implementing a contract to adversely affect the profit margins"
I agree with that. As for the rest, I don't know, so I'm not making any statements about the effect of inflation. |
The company has many posts to fill and agencies do not deliver. |
SRT seeking a Talent Acquisition Manager.
"responsible for continuously seeking out top talent, developing a compelling employment brand, and fostering positive relationships with candidates and employees." |
yump, I have no idea what your gripe is.
Here's a very general comment. Supposing (hypothetically of course) that the Indonesia contract had started in 2023, labour - to take just one illustration - would have been paid starting at 2023 rates. Leaving aside the effect of exchange rate fluctuations, which as sailing john points out can cut both ways, labour costs tend to increase over time (and in the UK, at least, employer's National Insurance rates will be 15% from next April compared with 13.8% in May 2023). Components will also tend to cost more with the passage of time (even though some will have been bought at the outset and stored). Similar considerations apply to transport, to overheads, etc etc. Other things being equal, therefore, there will always be a tendency for delays in implementing a contract to adversely affect the profit margins. And the longer the delay, the greater the scale of the problem. That's simply axiomatic. No matter how brilliant a company's contract management skills, lengthy delays in implementation will always tend to involve its swimming against the tide.
Hopefully, suitable protective clauses have been written into the Indonesia contract (also, as SJ points out, the Saudi contract, and indeed all contracts that risk being subject to long delays). To reiterate, it would be helpful if a suitable question could be asked at the AGM. For instance: "Without encroaching on confidential areas, what general comfort can ST offer to shareholders that the profit margins on major contracts, such as those originally announced in January 2022 and May 2023, are appropriately sheltered from the presumed inflationary effects of the lengthy delays in implementation". I'm sure that wording could be improved upon. |
Just to clarify.
My issue was with the “negligible profit” if no inflation priced in comment.
This thread is full of whinging and wordy guesswork which I am sick of, so I’m afraid the posting of that was a trigger, because its some sort of extreme case based on nothing much.
We simply don’t know what costs were incurred at what point in the inflationary period, so there is no conclusion worth bothering about.
I suggest anyone who seriously thinks these large contracts might have been mismanaged or written badly, just sells out.
You’ll sleep better.
Carillion went bust of course because of its tiny margins and poor contract management and provisions.
Plus we are selling to states with dodgy track records in all sorts of areas.
I don’t know how the contracts have been written, I don’t know whether a big chunk of costs were incurred early on, thereby avoiding inflation, I don’t know the margin on projects (although I think we have been told), I don’t know what employee costs and expenses were built into project prices at the start, I don’t know who is paying for product storage in the project countries, etc. but I can sleep at night because the risk vs reward seems reasonable.
There are plenty here like me who held before SRT morphed into the systems project area. That was the time the risk changed drastically and there’s been plenty of time since then to get out, if you liked widget sales rather than projects. |
Hi. Yes 25X. corrected |
"a PR ratio of 25%" - do you mean 25x? |
I believe that January 2025 is going to be the transformational month for SRT Marine, with the share price touching 100p. (Some here will laugh!) The most important feature will not be the AGM on the 23rd, although I suspect there will be a very large turnout engaging with the team, including our new NED, Oliver Plunkett. He is the CEO of Ocean Infinity which will be a 24% shareholder. The long awaited £160 million Indonesia contract should soon be up and running. However, the most important event will be the broker’s report, which will be supported by the half year figures (end December 2024). We already know a great deal about the broker’s report content, because of the £320 million of signed contracts. We can make a fair assumption about overheads. I am assuming £15 million 2025, £18 million 2026 and £20 million 2027. (the company needs to increase headcount considerably to deal with the increased workload). I am assuming that higher margin identifier sales, DAS and Nexus will grow from £12 million in 2025 to £16 million in 2027. The very big unknown, to be clarified in the broker’s note, is the average profit margin across all of the sales. Here I am assuming a 35% average margin. I believe that the company knows the strength of its offering and that 35% is about right. If we work on £300 million for sales for 2025, 2026 and 2027, I am going to pitch T/O at £80 million for 2025, £100 million for 2026 and £120 million for 2027. This deliberately underestimates T/O because it does not allow for identifier sales or future systems contracts.
Based on the above, I predict PBT for the current year at £13 million. 2026 comes in at 17 million, and 2027 delivers £22 million. If the above is achieved, SRT marine would be growing PBT, with compound annual growth rates of 30%. I believe that the market would award a PE of 25X to such a fast-growing, high-tech company which has the Warren Buffet ‘economic moat’. It also has a ‘gold standard’ international customer base, which is locked into SRT, so long as it continues to deliver on price, service and quality.
None of the above factors in the ‘bid premium’, which will be awarded when the company is taken over, and not necessarily by the 24% shareholder.
One final thought relates to systems contracts. The Kuwait contract appeared over a very short time span and others will probably provide revenue before June 2027. Is Saudi Arabia going to allow neighbouring Kuwait to have a far superior system? Let us also not forget the growing importance of fish monitoring in a world where fish stocks are declining at a rapid pace and IUU fishing is increasingly prevalent.
These are my predictions; will I be right or will I be wrong? I have given myself 24 days. Occasionally I am near the mark, but much of what I have written is already in the public domain. |
Apart from pld's very legitimate question it can also be noted that GBP-USD exchange has fluctuated between $1.09 and $1.34 in the period from Sept 2022 to the present.
The contracts can include costs in a mixture of currencies, eg groundwork (in local?), electronic components (probably usd), assembly (perhaps Euro) and design/specification (possibly GBP). One wonders how a firm price/margin can ever be arrived at.
The truth, I suspect, is that it isn't.
Given this mix plus the apparent over-optimism of SRT over time-scales (I might say naivety if I didn't wish to avoid being rude) it is not surprising that the market views SRT with strong dose of scepticism.
Very substantial companies have got into serious trouble with large contracts that turned sour. SRT's survival right since the early days when it hit a low of ~2p (I hold some bought at 2.5p) has been against the odds ... which is one of its attractions, I suppose. |
Many thanks SJ for your support. Yump, I'm all the more baffled at your apparently hostile attitude given that we're supposedly "on the same side" - I hold a sizeable number of SRT shares and have no intention of selling at anywhere near present levels - and given that my question was (with no disrespect) entirely reasonable and sensible.
It is not "nonsense guesswork" [sic] to state, as a statement of fact, that the figure of $180 million has remained unchanged since May 2023 in all comment coming out of SRT and its brokers. Meanwhile, and in general terms, the costs of sale are clearly likely to have increased. I fully accept that none of us can be more specific than that, but it remains a thoroughly fair generalisation. It's fair too to add that the strength of the dollar will increase the value of the contract in sterling, but even that must be weighed against the extra cost of non-sterling outgoings. To make that observation does not require knowledge of specifics.
Your attitude is uncalled-for: a bit more courtesy would be appreciated.
Edit - In their note of 27.12.24, just two weeks ago, Cavendish - SRT's NOMAD and broker - wrote this. Note the unchanged numbers.
" We look forward to further updates for two additional contracts ($180m Indonesia and c.£40m ME phase 2/3) currently expected to commence implementation by June 2025." |
Yump.The question raised by pld was valid unless You think inflation is negative!! Hopefully for shareholders the contract has been renegotiated to allow for this.
Edit - The same argument re profit margin errosion by cost inflation also applies to Saudi given that was originally signed 3 years ago with a short completion timescale and then paused?
Exchange rates also a potential issue but could be positive or negative as both contract income and costs in various currencies over different timescales. |
Has anyone here actually run a contract business and also read how SRT goes about procurement, product stocking etc. etc ?
I don't see why I should be nicey nicey, when nonsense guesswork is posted. |
Pld You are right to flag this as potentially serious issue. Inflation likely to be 10%+ so with margin at 20%+ that could be a 50% hit to profit!
Don't post often so HNY everyone and Yump... please try to be nice! |
pld - I suspect the information you're asking for would be regarded as commercially sensitive - not many companies provide that level of detail about their contracts as it would only feed into other later negotiations, not necessarily to the company's benefit. |
You said the profit margin must be fairly negligible by now, if inflation isn’t built into pricing.
Expect to be challenged on that if you don’t post any backup.
The inflation question applies to every businesses, but its effect on profits obviously varies depending on margin, on time of product spend, shipping rates, etc etc etc.
Even if inflation wasn’t built in, your “negligible221; assumes the whole project cost gets inflated and the whole margin is equal to the inflation increase. |
yump - whatever makes you think that? Misplaced sarcasm does you no credit. On the contrary, I have no idea, and I don't suppose you or any of us do either. Indeed, that's the whole point. The contract was quoted in the May 2023 RNS as being for $180m; so far as I am aware there has been no subsequent announcement on price, but IIRC (and I'm open to correction here) it was still being included at $180m in the 23.12.24 presentation, when I'd have expected the value to have risen to nearer $190m or even higher if inflation was properly built in.
Moreover, the figure of $180m was again mentioned in Cavendish's Oct 24 broker's note, and in numerous posts on this board by LaValmy, Countryman5, alter ego and others. See e.g. La Valmy at #15368 (7.12.24). So, to repeat: is an appropriate mechanism built in to the contract to reflect inflation and/or the time value of money - and either way, why has this not been made clear? |
You know their costs, margin and inflation on products and services not already bought then? |
I have a query about the $180m MDA contract announced in May 2023, now getting on for two years ago [it seems common knowledge that it's for Indonesia, but evidently we're supposed to play the charade of not mentioning that officially, as silly as that is] and which has apparently still not commenced even now.
Does anyone know whether there is an inflation factor or similar built into the price to compensate for the delays? If not, the profit margin will by now be getting fairly negligible. In case of uncertainty, is the question one worth raising at the AGM? |
It's the markets they operate in :¬(
Worth remembering though that Kuwait went the other way - no pre-announcement, no long-drawn-out negotiations and contract faffing, just pretty much direct to delivery. |
Thanks, LaV.
EDIT: Going back through the RNS history, the contract award was actually announced exactly three years ago. At the time, they said that all three phases should be completed in two years.
"The award is for the first of three phases of a project worth a gross total of £40 million. The phases are scheduled to be implemented serially, one after the other, over a total period of two years".
Plus ca change. |
Effortless
It is Saudi. They signed the 'contract' yonks ago but were waiting on this NTP. Whatever documentation formalities there are will be detailed timing, serial numbers of equipment and suchlike not the actual contract. |
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