The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
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Welcome the annual culling of revenues. Sheer slaughter as Stocko wittily jibed. There’s a thought, set a realistic target, and don’t waste time or money on anymore takeovers if you can’t make these ones pay their way. And don’t use ebitda every time to try and make it look less bad. Apart from that well done for ending up with a little cash ahead. How about a dividend? O I forgot it’s a growth company!
Incredible that revenues could be down on forecasts by such a huge amount. Cavendish were evidently totally blindsided by over-optimistic guidance from the company.
Cavendish, who now have a 78p target price, have reset forecasts for the coming year to £27.6m revenues, 2.4p EPS and a £6.8m closing cash pile at March '25 (against the current £10.35m m/cap).
The cash/asset backing to a supposedly profitable cyber-security business was the reason I invested here, so at least the downside remains well protected, but SWG have a lot of work to do to deliver potentially substantial upside from here.
I would rather Cavendish had underpromised further and forecast say £25m revenues, as overdelivering is always the way to go. Anyway, they conclude today:
"Valuation and conclusion: Shearwater Group is a company with a unique and differentiated set of capabilities in critical cyber security applications, and a global blue chip customer base. The company has a strong balance sheet and a track record of strong historic profitability and strong cashflow, together with a resumption of positive cash generation delivered during FY24. The current share price corresponds to an EV/Sales ratio of 0.2x. We are reducing our own target
EV/Sales to reflect the slower recovery trajectory, but we argue that a new target of 0.5x is justified based on the medium-term potential. This corresponds to a new price target of 78.0p."
Growth sector...Winning contracts...On a low PE....150p is my target...
Https://masterinvestor.co.uk/equities/alumasc-shearwater-and-more-all-on-the-move/
"Shearwater Group (LON:SWG) – Corporate Recovery Is Now Underway
It has not performed well subsequent to my previous COVID Profiles on this company, but I am now having another attempt at getting it right.
Capitalised at £12.1m, the cyber-security, advisory and managed security services group, which has recently secured an attractive three-year contract with a leading global bank for its services, is UK-based but operates on a global scale.
The company is expected to see its sales for the year, to the end of March 2024, rise from £26.7m to around £32.5m, spinning it around from its previous pre-tax loss of £1.3m to a profit of some £1.0m, worth 4.2p in earnings against a 0.4p loss per share.
Estimates are already out there for the coming year to lift revenues to £37.0m, hoisting profits to £1.7m, worth just over 7p per share in earnings.
It is the anticipation of this recovery, as well as its potential over the next 15 months, that makes the group’s shares at just 50.50p look an attractive counter in 2024.
Analyst Price Objectives are just above the 100p mark."
Excellent news - great to see the second UK Government department contract win as these tend to follow on from each other once you're "in".
And the big 3 year $3.15m cyber services win with the global bank is also expected to contribute to this current financial year to March '24, so this year's forecasts are looking well supported.
Hi Pedro, was that your 210,500 shares bought at 47p?
Big buying today...This is a bargain.....I expect this to double or triple this year.....
Amitshah - In case you hadn't noticed, we are in late 2023 and the world has changed significantly in the last 2 years!
The current market cap at today's buy price of 45p is £10.7m.
That's with £2.2m cash, at the end of H1 which is the quieter period and when monies are absorbed by working capital ready for the stronger H2.
Projected cash for year end is £5.0m (Cavendish expect £32,5m revenue, pre tax profit £1.0m, net cash £5.0m)
They had 7 million cash in hand in 2021!! What's happened to that mate?
Last year Net cash stood at £0.9m as of 30 September 2022 which reflected working capital absorption during the period. That subsequently reversed as was expected, where by the end of October 2022 Net Cash had increased to £1.5m.
The current trend (working capital) is no different, save for being higher than last years corresponding period.
Forecasts for the full year end is for net cash of £5m, which if coming in looks a very comfortable position, particularly in relation to the current market cap.
Look at the last 3 years, they went from 7 million cash 2021 to then 5.6 million in 2022 the 4 million and now 2 million! They are burning cash. In another 2 years there will be none left at the current trajectory. I hope things change but will need consistent results to restore confidence.
Thanks for mentioning Rich62 and also Troajan for the proactive comment.
Link to my piece for interest. I could have penned/added more, but a busy day and I was keen to get something out, hopefully of interest.
https://martinflitton1.wixsite.com/privatepunter
For those who are interested in another's more positive view of SWG - Private Punter (Martin Flitton); who is a share holder - has spoken with the CEO and new CFO today and written up a summary on his on line blog.
Whoops only 26.7 million last full year. O well
Good luck with tat PP. I have not seen broker forecast. Full year 22 they pulled the rabbit out of the hat and hit nearly 36 million after quiet first half. This year the rabbit went back down the hole and full year slumped to 27/28 million. Another 21 million on to the 10 million first half doesn’t sound very ambitious to be honest. I was hoping some of the delayed contracts from last year might have materialised in this half. Clearly that would have given them some kind of spring board of recovery. The cash position is marginally better if memory serves me right they had some kind of exchange issue last year, so that kind of nullifies the cash improvement, just means that didn’t make another mistake. Unfortunately the reality is yet another disappointing start more pipeline
Beg to differ on the £25m figure you mention, £21.7m looks right according to the broker forecast.
It'll be interesting to hear on the level of confidence in achieving that when I catch up with them later today.
I did say it would be best to wait for interims. The ‘traditionally quieter first half’ is slightly worse than previous two years which's were a disaster. So again they have an enormous amount of ground to make up in the next six months to produce a reasonable full year, at least 25 million. Again the talk is of awards and converting promising pipelines. Someone compared them to IGp . They talked about strong pipeline but the big difference is they delivered in their results recently. But only what would be expected of a growth company so still pretty expensive. The one thing about SWG is it is not expensive at this level.unfortunately that’s not enough to make it worth investing in yet by a long way unless you are prepared to buy ‘the pipeline’.
New interim CFO, Adam Hurst is now in place and previous CFO has gone.
The new guy has an incredible track record at very senior levels 9check out his profile on LinkedIn) and looks a cut above.
I'm hoping he can put together a great presentation for Friday's Investor session and clarify the business goals and strategy to deliver some real value for us shareholders.
Like it Wayne, £45.50 per share, I can sell one per week for my beer money
This is still a penny share soon they will be doing another 1 for 100 to make the price look good.
HI TKS
AT A TIME WHEN EVERYBODY NEEDS CYBER SECURITY WHY ARE YOU FINDING IT SO DIFFICULT TO OBTAIN NEW CONTRACTS? ARE YOUR PRODUCTS THE PROBLEM--NOT GOOD ENOUGH OR TOO PRICEY- IF NOT HAVE YOU THOUGHT OF EMPLOYING NEW SALESPEOPLE?
Just flagging that I'll be speaking with management on results day, so happy to ask anything of interest that others may wish me to put on the list.
RNS just released. H1 to end Sept results will be out on 22nd November followed by investor presentation on 25th at 1230.