Member Info for Hounddog10

Something seems to be going on. Can’t believe it is because of these ridiculous RNS Reach announcements. We will have to see. Many false dawns for this company.

They have actually had this product for many years although they have not said too much about it. I guess they are having a sales push on it.

2/2

But let us say an additional £62m (£130m - £68m) MDA revenue with gross margin at 20% ie £12m.

The transceiver side was flat last year (and I think in the previous 15 month period) but it is the sort of thing that may pick up after a period of abeyance. Then there should be contribution from Nexus albeit Mr Tucker has said the rollout will be cautious (but there are back orders to fill - remarkably patient customers!). So, at the least, overall transceivers should make some progress albeit in the near term quite modest.

So I would have thought next year is looking more like £5.5m (after tax) plus £12m (before tax) and possibly a bit extra from transceivers.

Tax should be at 25% and accounting wise that will be booked as a p&l charge as the deferred tax asset for tax losses is unwound. From a cash perspective as they have £21m of RECOGNISED tax losses (there is also a bigger figure disclosed of £35m TOTAL tax losses - so presumably some tax tax losses are not deemed recoverable, but unusually this is not explained) they probably have a year or so where no tax will be paid but they will receive the R&D tax credit - at the moment about £700k.

So the £12m reduces by 25% to £9m and with the £5.5m gets to £14.5m - a rather more comfortable number to base forward p/e on for a £200m+ m/cap plus business.

One word of caution is that Mr Tucker said in the recent webcast that the intention was to raise staffing from 160 to 200. I think most of these will end up assigned to projects as, hopefully, new projects come in but there will be some increase in overhead for those that are not and so doing R&D. It will, however, take some time to recruit.

By way of note admin expenses stayed flat at £17m despite the prior period being three months longer. I think what is happening here is that, absent a live project, under accounting standards IT staff have to be, effectively, charged to overheads but once they are working on a revenue generating project their costs go through cost of sales. If I am right this may be a factor pushing down admin costs as the projects last year only started part way through that year.

The Final Results statement was rather thin on detail so some matters are difficult to determine. I have felt the same for some of the previous financial information. They need to upgrade a bit and perhaps get a more experienced audit firm to help them. One example is that I understand from talk on another bulletin board that they have got a new loan facility from Barclays, presumably after the year end, but no mention of that as a post balance sheet event.

Any views welcome. No doubt I have made a few mistakes!

1/2

JRC1000

I think it is rather better than that. Profit after tax was £2m. However, this included a non cash accounting finance charge of £3.5m relating to the warrants issued to OI to recompense them for putting up the money needed for the performance bond on the Kuwait contract. I am normally intensely suspicious about stripping out these “one off” charges as often they never are. However, on this I think it is a genuine one off. So the starting point for a forward p/e is, in my view, £5.5m.

Of the £325m of MDA contracts underway £68m was booked in this financial year leaving £257m for future years. I understand the installation part of the projects are projected to run for around two years so I would expect the main chunk of that to fall into the next financial year but let’s say it is split evenly ie c£130m for each of the next two financial years. The overall gross margin for the last financial year was 31% (up from 24% in the previous 15 month period when nearly all revenue was transceiver) and implicitly of the £77m revenue for the last financial year only £9m was transceiver (£77m - £68m).

It is a little difficult to know what the gross margin for next year and beyond will be as my understanding is that for civil works (building towers for radar etc) they just pass through the costs billed by local contractors with no markup. Where they make their money is on the software implementation. So as they achieve milestones (and book revenue for achieving that milestone) the gross margin will depend on the software/civil works mix for that milestone. In the past Mr Tucker has said they assume a 20%+ gross margin on MDA projects and were looking to get that up.

It is probably around the convertibles. It is not clear that Quantum has anything to offer beyond finance. As far as I can determine Quantum is more or less a one man band financial planner although we do not know the identity of the underlying investors - possibly they know the commercial space.

Indorama may be losing patience. They have been rather generous. I think they have rolled the convertibles twice without penalty.

Well, no disasters or so it seems. They point to lots of activity but I suspect any resultant commercial orders will take some time to come through, be initially small and we are talking about 2026 still. There seems to have been quite a decent uplift in gross margin in d2w but sales of d2p have almost halved. That was a surprise to me. India downplayed although they expect certification by the end of the year.

The dog that has not barked in the night, however, is that there is no mention in “Outlook” of having caught up on “delayed” orders in H1. As they will know the three months to 30 September and probably have order visibility out for another month or so it must be assumed that they haven’t caught up and will not in H2.

Not enough cash to deal with the Indorama convertibles so either they have to get Indorama to roll them (again) or at this price significantly dilution on conversion.

.. to get the interims out or they will be suspended!

Yes, myself as well. Remember when it hit 46p as a “Covid stock”. Nearly sold but hung on because of bread packaging d2p and Bimbo three year exclusive contract. Came to next to nothing reckon they made less than £100k pa.

Panman

It is much broader than just the Reach RNSs. It is what they say in trading updates, prelim & interim announcements etc. almost nothing comes to fruition. Another favourite is saying d2w will be extending to a wider range of products in KSA/better enforcement. Revenue from the Middle East has slipped.

There must have been a reason the Americans bought in. You would hope they did their due diligence. However, they can’t be too happy right now.

Well, they have now got two days to get the interims out. Generally not a good sign that it has been left so long. I can’t fathom if it is because the outlook in the interims will be bad (but then I don’t see how it really helps to leave it this long) or they have been waiting for some good news to include which might bail them out.

The recent Reach RNS is very typical of them when they haven’t got anything substantive to say. Meaningless really - but then they have done that type of messaging so many times before.

Decent NED buy.

Ex trader

Thanks for the posts. I cannot really think of any reason for the KSA Minister to visit Kuwait except to see the MDA system and probably Needlefish. I can’t imagine viewing a patrol boat would be of much interest.

I would not put it past them to sneak something out at COB today. It can only be hoped that there has been a pick up in sales - but when in the past they have said sales are “delayed” they have not subsequently come through. The bright spots from recent statements/last annual accounts is that gross margin has gone up to 51% (partially due to change in mix towards more d2p I would imagine) and d2p sales are growing quite steadily albeit from a not very high base. Also they have had better d2w sales in Central America offset by lower Middle East sales. If they could only go back to the revenue they had three or so years ago they would be doing quite nicely.

India is the wild card. They have no influence on timing.

JRC - Could you put out another one of your posts about the need for a new contract in, say, a month’s time?

They have said it in the past but did not reaffirm it in the latest AGM statement. Really with India you have no idea when clearances like this will happen. The bureaucracy is even worse than the UK.

BASG = BASF

Not really. Perhaps the main one is Wells Plastic (private UK company). There was EPI in the USA (not sure if still going) and a small Swedish company (can’t remember the name) plus one or two others even smaller than SYM. Even if there were competitors of bigger scale than SYM the issue is not competition as there is a massive market it is about acceptance (overcoming the green zealots) and getting the regulators requiring oxo bio degradable plastic.

In Europe the problem has been the pushing of starch based plastics by BASG (German) and Novamont (Italian). Look on Bioplastics website for many articles. I think those are now in retreat.

A while ago the share price coalesced around 75p. At the moment I would say it is more like 85p.

The problem that SYM faces is that most of the people complaining about plastic are not really doing it because of any deleterious side effects of plastic. They are doing it because they are anti capitalist Marxists. They hate plastic because it is made from oil and to them the oil companies are emblematic of capitalism. Therefore they want no plastic and have no interest in mitigating solutions. They can’t explain how the modern world would work without plastic but then the Left has no interest in outcomes or solutions and are only concerned with protest.

This is why India is so important to SYM. If they can get approved and d2w makes a decent difference in such a large country then the Green/Marxist lobby will find plastic much more difficult to argue against. I think at some point it will happen because I cannot see plastic going away but SYM’s opponents are both very vocal and well funded.

It appears the banks have won!