Surveillance technology and networked security systems company Synectics (SNX) has updated including anticipated underlying profit before tax for its year ending 30th November 2018 is “broadly in line with market expectations” and that “the board is increasingly confident of solid progress in the group's results in the coming year”. The former is with “UK new bus registrations in 2018 are down significantly compared to last year” and “a large bus operator customer chose not to renew its fleet service contract on terms acceptable to Synectics, and a second customer took its service work in-house”. However, we noted diversification in the initial recommendation – and the company notes from the growing Gaming sector “a record financial performance”, with “Synectics has won a number of large new projects in both the Far East and the US from clients including Wynn and MGM, as well as growing repeat business from its established customers”.
“Underlying” is stated as “restructuring and ongoing review includes an assessment of the quantity and value of stock used in the group's on-bus service activities, as well as any other actions which may be required to address the reduced level of business expected in the UK on-vehicle sector. Management estimates that the restructuring, stock and other adjustments referred to above will result in an exceptional non-underlying cost in the group's income statement for the financial year ending 30 November 2018 totalling approximately £2 million, most of which will be non-cash… reducing operating costs by approximately £1.2 million in the financial year to 30 November 2019”. Additionally, “broadly in line” means ‘slightly behind’ but the “continuing restructured on-vehicle security activities are expected to deliver an acceptable positive profit contribution in the financial year ending 30 November 2019” and the overall “pipeline of expected new business is somewhat stronger than originally expected”.
House broker Stockdale has responded by nudging down its pre-tax profit forecast by £0.2 million to £2.8 million, though notes “£1m better than forecast net cash” (£6.5 million) and maintains forward earnings forecasts and a 315p discounted cash flow-derived target price, whilst adding “we also continue to believe that Synectics has the infrastructure/capacity to deliver £100m+ of revenue and double-digit EBIT margins. As and when there is greater confidence that this will be achieved, there is then the potential for a much more substantial share price uplift, in our view” .
There is also the potential for confidence to be sparked by oil & gas recovery – the company stating that is “now clearly visible” but “still working their way through the industry's planning and procurement processes”, with its such business having “continued to operate well below its past levels”. At a current 195p to buy, capitalising the company at sub £35 million, and at up to 240p the shares remain a recovery buy.
This article first appeared on the N50 website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve and a new shorting piece from Lucian shortly click HERE
Filed under: Synectics, Neil Woodford, Amo Pharma, Tekmar Group, Surface Transforms, Halosource, N50 website
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