Synectics Share Discussion Threads

[eggbaconandbubble] 25/6/2014 10:14

I'm gobsmacked that this appears to have come as a suprise to the market.
Surely as soon as Iraq kicked off didn't everyone bail out of any company who was operating there. Gulk Keystone etc.
Reading the trading statement very carefully, a couple of times infact, I think it is cushioning the blow for worse to come.

[valhamos] 25/6/2014 08:36

For a company that is a "leader in the design, integration, control and management of advanced surveillance technology and networked security systems" it seems remarkable that it is unable to get it own parts and systems working together.

The board's recent updates have given the impression that they are mere spectators not actually managing the company - poor management; gives AIM a bad name. Reluctant hold at these prices.

[cockerhoop] 25/6/2014 08:18

I take your point and I agree often contract management problems often become more widespread than when initially reported (RHL is a classic case). I would though rather the company admit failings and hopefully correct them than be in denial.

[dasv] 25/6/2014 07:26

yes but they admit ineptitude re: project management and cost overruns. It remains to be seen whether new measures taken will prevent similar problems in the future. Getting to be a value play at these levels with market cap falling below turnover. Enterprise value 74.6m versus market cap 75.8m

[cockerhoop] 25/6/2014 07:13

Obviously it's a unwelcome (to say the least) update but I think the company deserves some credit for the comprehensive nature of it, explaining clearly what the issues have been and taking responsibility for some of them.

Fairly encouraging order book (especially as they've just lopped £7m off it) - if it contains profitable orders :-)

[dasv] 25/6/2014 06:55

if bad news comes in three's I'd expect another bad one minimum to follow. awful update.

[vb79] 25/6/2014 06:48

Sorry, my mistake

[stegrego] 25/6/2014 06:46

Nope I think that is SNTY Synety

[vb79] 25/6/2014 06:35

Wasn't the main man from SNX at a Paul Scott investor evening very recently promoting the company?

[stegrego] 25/6/2014 06:33

Stonker of a profit warning that one. May be OK providing the pipeline comes good and they sort out internal controls, which seem very poor.

[davebowler] 28/5/2014 09:07

Westhouse;



SYNECTICS*
Buy













SNX.L / 420.0p / £74.74m / TP: 675p













Event: News report













Likely % change in earnings forecasts: No Change














Launch of Synergy 3

Synectics has announced the wide-scale roll-out of Synergy 3, its latest command and control platform. Synergy 3 is simple to deploy and integrate and its new functionality ensures it has applications across all of Synectics' target sectors. With customers able to select the right functionality to meet their needs, both businesses and organisations can grow their surveillance solutions organically.

As Synectics is "very excited by its potential" we would hope to see sales momentum build in the second half of FY2014 and beyond. We make no changes to any of our forecasts, 675p target price or Buy recommendation.

[davidcod] 30/4/2014 08:37

Breakout continues from yesterday:

1-yr (daily):


10-yr (weekly):

[davebowler] 30/4/2014 08:31

Westhouse;


AGM statement

Synectics has said that trading so far this year has been in line with management expectations. Given the order pipeline trading is anticipated to be more skewed to the second half of FY2014. More encouragingly, management now expects some of the new projects in the Far East to mature into substantial orders over the next six months. This follows on from the major contract won and delivered in Singapore in FY2013. This should enable profit growth to resume in FY2015.

At this stage we make no changes to any of our forecasts, our 675p target price or Buy recommendation

[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.

---

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.