star18 Mar 2019 08:45
Finals – Positive newsflow for 2019
Starcom, the developer of wireless solutions for the remote tracking,
monitoring and protection of assets and people, has announced FY results in
line with January’s trading update. A combination of increased revenue and
higher gross margin resulted in a $0.2m reduction in adj. EBITDA loss to $8k
and the company was breakeven in H2. 2018 saw progress commercially and in
the product set and newsflow post period end has been encouraging with
contracts for the existing products (Helios, Kylos and Tetis) and the
forthcoming Watchlock Lokie has generated considerable levels of interest. As
a result, further higher margin revenue growth should result in Starcom moving
into sustainable adj. EBITDA profit in FY19. The balance sheet remains tight,
however, although the situation has improved somewhat with the receipt part
of the funds from the North Africa contract announced last November.
– FY18 performance – Revenue increased 10.2% to $6.0m with gross profit +16.2% to
$2.4m reflecting increased SaaS revenue (+17.5% to c. $2.0m) and increased sales
from the higher margin products (Tetis, Kylos and Watchlock). These products
represented more than 50% of hardware revenue for the first time. As a result, gross
margin increased 210bps to 40.3%. Operating costs expanded at a slower rate
(+9.3%) and adj. EBITDA loss reduced $193k to $8k. Reported loss before tax reduced
$519k to $831k. Losses plus an expansion in inventory resulted in a cash outflow of
$1.0m that was balanced by a cash inflow from financing activities (including $1.4m
from three placings) and cash was unchanged at $0.1m. Net debt reduced $0.2m to
$0.4m. Post period end, Starcom received a down payment for a significant portion of
the initial $1.1m order for its Helios Advanced units in North Africa that was initially
announced last November. This has helped to strengthen the balance sheet.
– Outlook – FY19 newsflow suggests further revenue growth. In February, Starcom
provided an update on its relationship with Xplosive Solutions Pty for supply of Kylos
units in the monitoring of cattle. A new three-year agreement is worth an initial
$500k. Second, Zero Motorcycles is integrating Helios into its new motorbike, the
SR/F, although this is unlikely to result in substantial revenue in the short term. Third,
it has entered into a framework agreement (initially worth $0.6m) with ICL (Israel
Chemicals) for the use of Kylos Forever units to track and monitor sensitive cargo.
Finally, Starcom is due to launch Lokies, a Bluetooth enabled version of its keyless
Watchlock, Management reports considerable interest and a number of pending
orders and is confident of meaningful revenue in 2019. Assuming revenue growth
from new and existing customers for the higher margin products plus ongoing cost
control should see Starcom move into sustainable EBITDA profit in FY19.
http://www.allenbycapital.com/research.html
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