Having been over 600p in 2013, shares in Synectics (SNX) were heading towards 100p towards the end of 2014 following a “Trading Update and Board Changes” announcement, which included from Chairman David Coghlan; “In the board's view, and I'm sure that of other shareholders, a third profits warning in a year for Synectics is unacceptable, even after five years of solid profits growth. Some of the factors behind this poor performance have been outside the company's control, but others were not. Action is being taken to ensure future profitability is not dependent on the timing of revenue recovery in certain sectors”. Such action looks to have been taken, but the share price has only recovered to a current 220p offer – and this looks a recovery story with more to go...
The company describes itself as “a leader in the design, integration, control and management of advanced surveillance technology and networked security systems”. Its ‘Systems’ division “provides specialist electronic surveillance systems, based on its own proprietary technology, to global end customers with large-scale highly complex security requirements, particularly for oil & gas operations, gaming, transport & infrastructure protection, and high security & public space applications”. A ‘Integration & Managed Services’ division - of Systems division and third party offerings - includes a nationwide network of service engineers, UK government security-cleared personnel and facilities and an in-house 24-hour monitoring centre and helpdesk.
In January 2015 Paul Webb became CEO. He has a degree in Physics from Imperial College London and joined the company in 2004, subsequently overseeing the growth of its industrial systems activities and then leading the consolidation of all of its proprietary technology systems activities into a single operation. His remuneration last year totalled £374,000 (including a £90,000 bonus) and he has 36,322 shares in the company. Finance Director Mike Stilwell took on the role in December 2015 though is leaving at the end of the company's financial year. His replacement is Simon Beswick - a fellow of the Chartered Association of Certified Accountants and with previous industry experience including European Finance and Legal Director of Rohm & Haas (a Fortune 500 specialty chemicals company at the time listed on the NYSE) and Finance Director and subsequently Managing Director of Tritech International, a subsidiary of FTSE 100 constituent Halma. Stilwell’s remuneration last year totalled £183,000 (including a £36,000 bonus) and he has 6,910 shares in the company. Chairman David Coghlan was formerly a partner at strategy consultants Bain & Company and is an experienced non-executive. His remuneration last year totalled £86,000 and he has 1,521,303 shares in the company. We also note that on just Thursday Business Strategy Director David Lowe bought £20,600 of shares at 206p each.
Results for the company’s half-year ended 31st May 2018 showed pre-tax profit up 12% on the corresponding prior year period, at £1.5 million, on revenue 3% higher at £34.7 million. This was despite currency impact – “on a constant currency basis, underlying profit and profit before tax were both up 31% to £1.7 million”. Due to an increased proportion of profits generated from the US and a resultant projected higher effective tax rate, earnings per share were down slightly to 5.9p. However, after particularly a more than £4 million net working capital inflow, net cash increased by £5.2 million to £9.1 million and the dividend per share was increased by 20% to 1.2p. The company did though note “the high cash inflow in the half was in part a function of an unusually positive reduction in working capital requirements due to the timing of payments on major contracts. The current average net cash is around £5 million, and this balance more accurately reflects the underlying position”. Current assets over total liabilities increased by £1 million to £16.8 million and it also emphasised “order book up 18% since the year end to £28.8 million”. It has since also announced a “multi-million pound project” from Serco to replace CCTV systems at six UK-operated custodial sites.
In terms of risks, as earlier noted there were some prior profit warning factors outside the company's control and others not. There remains some sector risk – the latest interims, for example, including “underpinned by a very strong performance in the gaming sector”. However, there does look a decent spread now – the overall performance delivered despite the UK bus and coach market “remained weak” and a lower Integration & Managed Services contribution, for example. Additionally, on the latter it was emphasised “this is primarily a timing issue… order book, up 23% since the year end, which supports management's expectation that the division is poised to produce much improved revenue and profits in the second half”, whilst “in the Oil & Gas surveillance sector, the level of enquiries and quotes has picked up significantly… this increased activity is expected to feed through to growth in Synectics' revenues from 2019”. There is also technological risk, but the company has increased its investment in product and business development, seeing “opportunities to capitalise on emerging software technology applications”. There is also risk in project delivery and it notes exchange rate and Brexit risk, though that these are closely monitored.
House broker to the company, Stockdale, is forecasting full-year earnings per share slightly down on last year, below 15p, but, noting the order book and pipeline of high probability expected new business, is looking for heading towards 20p next year and more than 25p the year after – and calculates a discounted cash flow-derived 315p target price. Of course, some scepticism needs to be attached to house broker targets but the above suggests the numbers realistic – and we note 300p for example, equates to less than 12x soon-to-be the next year’s forecast earnings. As such, at the current 220p offer and up to 240p, the shares are a Recovery stock buy.
This article first appeared on the Nifty Fifty website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website - where there is a new tip EVERY DAY DURING THIS WEEK and a new shorting piece from Lucian later in the week - click HERE
Filed under: Synectics, SNX, bearcast, AIM awards, Dunelm, market crash, gold, Horse Hill
RISK WARNING & DISCLAIMER - FiveFreeShareTips.com tips are provided by independent authors via a common carrier platform and do not represent the opinions of FiveFreeShareTips.com. FiveFreeShareTips.com does not accept responsibility for or make any warranties in connection with or recommend that you or any third party rely on such information. The information available at FiveFreeShareTips.com and via emails you receive from [email protected] are for your general information and use and are not intended to address your particular requirements. In particular, the information does not constitute any form of advice or recommendation by the tipsters or FiveFreeShareTips.com and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Trading shares involves the risk of loss. The tipsters and FiveFreeShareTips.com shall not be liable for any losses or other damages incurred. The value of investments can go up or down and the past is not necessarily a guide of future performance.
Well actually it will be six. One every week day and one on Sunday, each landing with you at 11 AM sharp.
Unlike other services (which may always have a vested interest) we pride ourselves on our impartiality and cover all small caps including AIM. the Standard List, The Wider Main Market and NEX.
We cover small caps, penny shares, FTSE 350 stocks and blue chips. We look for red hot penny shares, Warren Buffett style value investments with yield and growth stocks. There is no technical analysis in our work just solid fundamental analysis from a team of experts with decades of stockmarket experience.
You will not agree with all we publish but if you are interested in small caps you cannot afford to ignore it either. Yo'll never be charged for the free share tips from Five Free Share Tips and given the star writers involved you know that they will move share prices.
There's no telephone number or postal address required and there is no charge, ever, for your Five Free Share Tips membership. Just free shares tips every day apart from Saturday And each day's share tip will not just be a few thoughts cobbled together but will be detailed analysis from experts.
Our experts do not just earn their living from writing. All own shares. If they own shares in a stock they cover they will declare it and will not sell until after advising a sell to our readers. And why not our tips are so good that why shouldn't our readers put their money where their mouth is?
Don't just take our word for it! Judge us on the calibre of our free share tips and join today to start receiving them from September 1 2017. If you don't like what you get delivered to your inbox unsubscribe and you will never hear from us again. So why not give it a go? Sign Up Now
We've put together a panel of top tipsters, including:
Tom Winnifrith, in his 27th year writing about shares, noted fraudbuster & dubbed "The maverick Tipster"
Chris Bailey, City whizz kid turned financial guru, rated as one of the top 50 commentators on shares on twitter, founder of Financial Orbit
Steve Moore, has worked with Tom Winnifrith for all bar 3 weeks of his working life - a noted commentator on value stocks
Malcolm Stacey, The Grandfather of Share Blogging, the founder of ShareCrazy & a best selling autthor of stockmarket books
Lucian Miers, the Bard of the Boleyn, one of the UK's best known short sellers
Gary Newman, writes about value investing on AIM, speciality is in share tips on oil and mining companies
Nigel Somerville, The Deputy Sheriff of AIM, an expert in forensic analysis a skill used to bust frauds but also to tip true value investments
The team from HotStockRockets, specialising in AIM and small cap shares which will fly on a three month view
Remember to book your place at the UK Investor Show 2018. The UK’s top investment show taking place on Saturday 21 April 2018 at the Queen Elizabeth II Conference Centre in Westminster, London. The show will feature a unique line-up of top speakers including Nigel Wray, tech queen Vin Murria, Dave Lenigas, Mark Slater, Tom Winnifrith, Adam Reynolds, Ed, Croft, Nick Leslau Luke Johnson and Dr Johnny Hon as well as 135 exhibiting small cap companies.
The hot share tips given here are of necessity, general. They cannot relate to the individual circumstances of investors. Anyone considering following the share tips contained here should seek independent advice from a Financial Conduct Authority authorised Stockbroker or Financial Adviser. We cannot be held liable if individuals suffer losses through following share tips contained on this site or emailed out as free share tips. The value of investments can go down as well as up. The past is not necessarily a guide to future performance. Investing in shares can lose you part or all of your capital although the potential returns are theoretically unlimited. The difference between the buy share price and the sell share price for smaller company shares (penny shares) can be significant. Profits from dealing in shares may be liable to tax - the level of tax and bases of relief from tax are subject to change. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Some of the shares recommended on this site will be smaller company shares. By their nature such investments can be relatively illiquid and thus hard to trade. And that makes such investments more of a high risk than larger company shares (or 'small caps'/'penny shares'). FiveFreeShareTips.com & its sister site ShareProphets.com defines a smaller company share as any stock traded on AIM or NEX or which has a market capitalisation of less than £300 million.