Extrader
I am not too bothered about this issue and I don't think there is any incentive for OI to be stalling on replacing their cash with a guarantee from their bank to Santander (which I think is what is meant by 'on OI's behalf'). More than likely it would involve an extra set of fees and OI may have to deposit the cash in any case. Whatever, it really has no impact on SRT at this stage and they would have to pay OI for the guarantee as opposed to interest at 0.75%.
It seemed pretty obvious that SRT expected UKEF to take some time to issue cover for this. At the time it was stated that it was a different and shorter process compared to the Bakamla loan. That is the one I would like clarity on as it is impeding progress. The OI issue isn't, though I will ask what the hold-up is. |
PS
Today's FT has this headline
JANUARY 19, 2025
Santander considers UK exit amid frustrations with high street banking
Spanish group reviewing its presence in the country as returns lag other markets
Any difficulties SRT (or Ocean) may be experiencing with Santander may not - necessarily - be of Santander's making :
In a former life, I helped my then employer bank exit a country, in stages : I exited one centre ...and then got promoted ( ;-<) to exit the other.
Part of the process involved is 'de-risking'...and not taking on any fresh, 'complicated' commitments.
SRT may just be caught up in a 'de-complicating' strategy not of its making.
But-if that's what is happening - the timing sucks.
Maybe another question for the AGM.
GLA |
 Hi LaValmy,
.."To be a bit picky, it is Ocean Infinity that is supposed to replace the cash collateral with a bank guarantee. SRT is then supposed to replace that with the UKEF and their own resources within the timescale you mentioned. Maybe OI has found it difficult to get a guarantee that does not require them to post cash collateral in turn. If so, the cheaper option all round would be to leave the position as is."
Have you been told this by the company, pls, because the bit in bold sounds odd: it's SRT that has a credit issue and has to cash-collateralise its contingent obligation (and doesn't have the cash to do so) not Ocean (which evidently does have cash and/or adequate credit line(s) since it stumped up the money in the first place).
I would expect the structure to have been as follows :
(1) Client requires a PB to be lodged on contract signing;
(2) Contractor normally arranges for his banker (Santander?) to issue the PB;
(3) Banker is unwilling to do so (outwith Contractor's credit limit)and / or credit approval will take time);
(4) Given urgency, Contractor approaches Ocean and gets a quick cash loan, with conditions attached;
(5) These include loan int rate; fund-raise; repayment terms incl default (euphemistically, 'delay') penalties;
(6) Ocean deposits $ 21.4m cash in escrow account (SRT/Ocean)with Santander, who immediately issues wholly secured PB;
(7) The plan (see below) was for Santander to accept (i) a replacement of Ocean cash for an Ocean guarantee and later (ii) replacement of the Ocean guarantee by SRT's resources + another guarantee- from UKEF- as and when the facility becomes available. What's the reason for the UKEF delay?
Cash is the best form of security, from a bank's perspective - it's what made a quick reply to this urgent need possible in the first place. It'll be slower to surrender for lesser security/more credit risk in a hurry....
The 16 Jan trading update confirms that there was still full cash collateralisation @ 31 December :
.." Gross cash balances as at 31st December 2024 were approximately £4.5m, excluding $21.4m held in escrow.."
This isn't what was supposed to happen, per the 28 Oct Finance Support Package RNS :
.."The OI guarantee is initially provided as a cash loan of $21.4m with an interest rate of 0.75% per month.
The loan is expected to be repaid by SRT with a period of approximately one month - 31 December is 2 months - and replaced with a bank guarantee on OI's behalf.[This wording doesn't make sense: SRT doesn't have cash to repay $21.4m, what it should say is that Santander will take an Ocean guarantee or (more likely, since it may not have a credit limit for Ocean) a *guarantee from Ocean's banker...and, on receipt of this substitute security, release the cash security back to Ocean.
Not to SRT, that's why it was in an escrow account: to recognise Ocean's involvement and to protect Ocean's interest.
The OI bank guarantee[* confirmed] itself will then be replaced within the next 6 months using a combination of SRT's own resources and UKEF export guarantee program. [ = replacement rate will depend on quantum available from UKEF AND SRT's free cashflow AND whatever extra credit- if any - Santander is willing to grant SRT in the meantime].
So it would seem that
(1) Notwithstanding the above, Santander credit approval to substitute Ocean cash for Ocean contingent hasn't come through as at 31 December. I'd like to know why. Has its approval process been delayed by SRT's changing requirements for other contracts? If that's not the reason for delay, what is/was?
Edit : See next post !
[There shouldn't normally be an issue at Ocean's bank end : it could send Santander a guarantee for $21.4m contingent on Santander's releasing to it the $ 21.4m ...and then deciding at leisure how much cash it would in turn release to Ocean. 'Cash is king' in credit matters.]
(2) Point (1) needs clarifying, (a) because SRT is presumably still paying 0.75% per month for the loan; (b)more importantly, the loan has already run 2 1/2 months and if SRT/UKEF haven't retired the Ocean guarantee fully in (now) 5 1/2 months, the penalty kicks in:
.."In the event that SRT does not replace the OI guarantee within 8 months, a further 4m warrants per month will be issued with a strike price equal to a 15% discount on the share price at the relevant time.
This isn't quite a 'death spiral', but it does give Ocean some perverse incentives.
(3) I think the point I raised on the 16th still stands :
.."Assuming this sequence is broadly correct, could somebody ask Simon for an update on where we actually are with the UKEF facility going 'live'.
We need answers on a number of basic issues, I hope someone at the Open Day/AGM will persist until we get them.
GLA and ATB |
Nice way to spend the weekend - fantasizing about future gains :¬)
Trouble is, I think the only credible bidder is now OI. If somebody else makes a hostile bid, it would, prima facie, be in the face of opposition from both the management and our 24% holder, which means it would only succeed if it were ginormous. At 3 or 4 times the current share price they'd be in with a shout, but who in their right mind is going to offer that? What would their shareholders think of it?
I think it likely that sooner or later OI will buy SRT, but from what I've seen they're pretty patient, and far more likely to wait for something to go wrong then step in with a helpful offer of assistance than to make a quick knock-out bid. |
I’d like to know what capacity the UK gov has for keeping critical businesses UK owned. Not that we have an SRT system installed here, so perhaps its only critical because it could be a genuine long term UK success.
Pretty sure if it was in the US, Trump would find a way to keep it there.
Seeing as Labour are supposedly trying to big up our future industry, perhaps they should back that up in some tangible way.
I certainly don’t expect our shareholder base to keep shares if they can see a decent profit. We’ve been short-termists for a long time. (I don’t mean the decade of regulars here) |
Significant volume breakout. Volume well over 2x 20 day average volume
Easy for buyers to push it up now on even low volume |
A £1 is not enough! Where have I heard that said before! |
My understanding is that Leonardo and Airbus missed out on Kuwait. What does Ocean Infinity want from SRT? It is clearly in pole position, if it wants SRT as a subsidiary, but there are some substantial shareholders to win over. At the end of the day, nearly all countries will deal with global defence companies, even Israeli ones. Would the UK gov seek to limit potential candidates?
If I was looking to capture SRT, I would launch a hostile bid on Thursday.(Why wait any longer?) Catch the board off guard and gain maximum publicity. A bid of £1 would probably land 15% of the shares. The bidder could then use that as a further launch pad, or else sell at a profit to the eventual bidder.
Simon is of the opinion that this BB is widely read across the world! |
Good post, Countryman.
The key issue for me would be : who could buy SRT without risking alienating/scaring off a lot of its potential (and maybe existing?) customer base?
Indonesia and the Philippines might be OK with a US buyer , but the Gulfies and others?
A French buyer? A German or Spanish buyer ? Chinese or Russian ?
You get the point....
Maybe a neutral multilateral that was IFF-focussed?
An interesting issue, AFAICS.
GLA |
I would suggest that the chances of there NOT being a takeover, are very small. The interesting question is the eventual takeover price. Obviously, some people are happy with 50p. However, there are some large shareholders here, including Ocean Infinity, at an eventual 24%. I am reminded of Nigel Havers, the host of The Bidding Room. He invariably advises potential vendors to list the main things about the item for sale. I list some of the factors that will weigh on the eventual sale of SRT:-
*£. SRT has the Warren Buffet 'Economic Moat'. This means that its Geovs system is unique and not easily replicated.
*£. The customer base for its systems business is gold plated, because global sovereign countries, some with very deep pockets, are a dream contact list for global defence companies.
*£. SRT has similarities with Apple. Customers have 'stickability', meaning they find it difficult to move away, because they are connected to the system. Although SRT appears to have a margin of about 35%, this has potential to increase, because Coast guards and fisheries increasingly need the SRT offering.
*£. SRT has a reputation for quality and service, which it will hopefully maintain.
*£. Satisfied global customers act as unpaid ambassadors for the company, allowing for minimal marketing expenditure.
Finally, we are in a world driven by digitisation and data collection. However, the clever bit is 'Slicing and dicing' the data so that it actually means something to the end user. SRT is certainly in a sweet spot and full marks to the team who have navigated the way to where we are. Fortunate are those shareholders who are able to join the company now. |
I am anticipating a confident update at the AGM on Thursday. There is probably anticipation of this being reflected in the share price There will always be 'profit takers'. There is a saying 'It is never wrong to take a profit'. The real trigger for the share price will be the 'Brokers note', which is probably all prepared and waiting for the final sign off of Indonesia. However, the reality is that we know there is at least £300 million of T/O spread over three years and the recent half year figures give a steer on margin. We know that head count is set to increase in a substantial way, and there are going to be much awaited team bonuses. The unknown is what P/E will be awarded by the market. When to take a profit? My view is keep all of the capital working and pay HMRC when the inevitable take over happens. |
What is the latest with Simon Tucker and the Philippines corruption allegations ? |
In danger of making a profit here after what seems like decades |
Tax !! ;-((
I owe a chunk from my business which I am delaying paying until the last minute. So far I've had about 10 "can we help?" emails and texts from HMRC.
Its a bit like those marketing emails that say "sorry we sent you an email by mistake telling you about our amazing sale". |
boing ! upwards and onwards!! |
Yump. Help the market maker. Sell the lot and pay the tax |
How many more should I buy though?
Questions are being asked here by my long standing jam creditors and I have to promise something significant. |
If revenue for first half was £25.5m and profit was £2.5 and gross margin was 35%, this would suggest overheads for first half at £6.25m. I assume second half overheads will be much higher, due to increased headcount. If T/O for year is £80 m, and year overheads £15m with 35% margin, this might leave PBT at £13m for year. (No tax to pay due to C/F losses). Looking forward to brokers note, which hopefully will have three years being forecast, underwritten by contracts with scope for upgrades as more revenue added.
Current Market cap £105m. 13 X 20 =260 |
Bit of buying before any forecasts?
Hard to imagine forecasts not catching quite a bit of attention.
“IF” 10% is anywhere close to a net annual pbt, SRT is grossly undervalued. |
Would it be reasonable to assume that some of the costs of the contracts that will generate revenue this year, have already been incurred and would therefore be in the first half results ? |
Extrader
To be a bit picky, it is Ocean Infinity that is supposed to replace the cash collateral with a bank guarantee. SRT is then supposed to replace that with the UKEF and their own resources within the timescale you mentioned. Maybe OI has found it difficult to get a guarantee that does not require them to post cash collateral in turn. If so, the cheaper option all round would be to leave the position as is.
SRT still have to come up with the UKEF facility (up to 80% of the bond) and the remainder themselves. Given their poor actual knowledge of the timescales that UKEF operates on, anything they say at the AGM might not be reliable. I still suspect that the delay on the Indonesian loan is SRT specific, probably to do with the Philiipines situation. That should not, in theory, impact on this performance bond cover. |
FT Jan 16.
'Nato will send in drones and submarines to foil sabotage in Baltic sea'.
The world is fast changing. Clearly more opportunities for Ocean Infinity. The real message is that Countries need to know what is happening in their maritime domain. Data, data and more data, together with the ability to analyse data and identify threats.
Are we going to see coastguard and naval vessels with Geovs terminals on board, analysing data feeds? |
I see from the RNS that USD 21.4m provided 28th October by Ocean Infinity to cash-collateralise the Kwt$ 213m contract Performance Bond is still in escrow as at year end, 2 months later.
AIUI, SRT is supposed to substitute the cash provided by Ocean to SRT's bankers by a guarantee or alternative collateral of its own and release monies back to Ocean Infinity.
The alternative collateral basically coming gradually from the UKEF facility as this gets underway.
Assuming this sequence is broadly correct, could somebody ask Simon for an update on where we actually are with the UKEF facility going 'live'.
The reason I ask is my concern that we're eating into the rescue facility's 8 month term, after which - if the obligation to Ocean hasn't been settled - they'll be able to start accumulating 4m shares per month at a 15% discount....
TIA and ATB |
Positive piece from ST in the IC. Buy recommendation, TP of 75p “could prove conservative”. Let’s hope so! |
3 more new posts advertised by SRT including
International Business Development Manager - OEM Transceivers
Now that they have entered the radio market via Nexus, they are clearly intending to go at it in a big way. Huge potential. |
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