As a leader in machine-readable high-speed banknote authentication and brand protection technologies, as well as gaming security software, SPSY has highly technical optically based science as a foundation stone. Today's announcement that it is acquiring, for a de minimis amount, a further stake in Solaris BioSciences Inc., is therefore bang on target in terms of broadening its reach with these technologies into the very substantial new field for SPSY of bio-fluid analysis opening up the bio-tech and healthcare markets. Solaris, in which SPSY's CEO, Dr Lawandy, is a leading shareholder, has created and patented a new, highly sensitive, fast and efficient analytic tool for fluids such as blood plasma, relevant to heart issues, among other uses, as well as to pathogens. The investment, to be settled by c.$0.7m of cash and new equity, is not expected to require further substantial investment over the next 24 months. However, the potential market is regarded as vast. Our forecasts remain unchanged while our SOTP-based valuation remains a risked fair value of 240p.
Companies: Spectra Systems Corporation
Spectra Systems Corporation, a leader in machine-readable high speed banknote authentication, brand protection technologies, and gaming security software, has announced that it has executed a comprehensive services contract with a ‘long standing' central bank customer for the development, manufacture and servicing of a sensor system. The initial development phases underpin our FY2021E estimates (with risk likely to the upside), but moreover, the balance of development work, comprising supply of sensors (estimated value up to $34m in 2024-25), servicing revenues ($7.5m) and resultant high margin material sales through to at least 2035, provides significant underpinning of future prospects. Our updated Sum-of-the-Parts valuation (reflecting higher than anticipated development revenues and margins) indicates a risked fair value of 240p (from 200p).
Spectra Systems, a leading provider of advanced technology solutions for banknote and product authentication markets, has announced a solid set of interim results. Moreover, significant H2 visibility, notably from central banking customers, yields upgrades to our FY 2020 and FY 2021 estimates with adjusted PTP increasing 17% and 16% to $5.8m and $6.1m respectively. In terms of H1 numbers, revenues increased marginally to $6.5m (H1-19: $6.4m), and adjusted pre-tax profit came in flat at $2.3m. The balance sheet retains its robust state which, even after the $4.1m FY 2019 dividend, distributed June 2020, still holds $10.9m (H1-19: $11.1m) of net cash (excluding restricted cash of $1.3m, H1-19 $1.1m). Our Sum-of-the-Parts valuation indicates a risked fair value more than 200p.
Caledonia's Q2 2020 production from its 64% owned Blanket mine in Zimbabwe was 13.5koz gold. This was an increase over the same period last year of 6.2%, leaving Caledonia with a first half production of 27.7koz – well ahead of this time last year (24.7koz) and on track to meet its 2020 full year guidance of 53-56koz (WHI etc. 55.5koz).
Spectra Systems Corporation is a provider of machine-readable high-speed banknote authentication, brand protection technologies and gaming security software. The company has announced that it has executed a new contract with a major world central bank to ‘enhance existing authentication sensors to detect a unique type of counterfeit notes'.
Companies: Spectra Systems Corporation (SPSY:LON)Caledonia Mining Corporation PLC (CMCL:ASE)
It is disappointing that having made an impressive and validated bid to an Asian central bank at a keen price, Spectra has been underbid, at the final hurdle, irrespective of the strength of its technology, and notwithstanding its proven track record and secure production facilities. However it is important to note that (1) there is no impact on our (recently upgraded) forecasts, (2) SPSY retains a strong hand of other prospective opportunities in its $US100m-plus pipeline, (3) other, as yet unquantified, opportunities are building, and momentum has continued to be good from this perspective. We believe that refusing to chase an under-bidder was the right decision, and that this strategy will continue to be vindicated as SPSY's Level 3 technology finds its home with major and multi-year clients who value the combination of superior technology and an attractive price rather than price alone. Cash generation remains strong, with the company recently announcing an extra element to its dividend, this about to be paid to shareholders. SPSY continues to be a formidable and highly specialised provider of advanced technology solutions for banknote, product authentication, and secure lottery transactions, with $US16m cash on the balance sheet, meaningful contracted / highly visible revenues and many more opportunities.
Results ahead; forecast upgrades, special dividend, yielding 7%
SPSY has announced a strong set of results, with EBITDA and PBTA some 6% and 4% respectively ahead of our forecasts, following a succession of upgrades and some notable wins during 2019. Reflecting the strong momentum, and with forecasts well supported by firm contracts which exist independently of the current global crisis, the company is (1) trading ahead of expectations in the current year, and (2) with strong cashflow, feels confident to announce a special dividend this morning to be paid in June. With meaningful upgrades to the current year, and new, progressive, forecasts for FY2021E, the current outlook is strong at a time when this is rare for a mid-cap company; while key opportunities developed over the past eighteen months continue to be highly promising. SPSY provides advanced technology solutions for banknote, product authentication, and secure lottery transactions as a highly specialised operator, working in fields which offer valuable respite from Covid 19. Cash of $US14.3m is ahead of our expectations and some 13% ahead YoY. Well-invested and with well-controlled costs (and high gross margins), today's results provide further support for our fair value assessment, which in turn is far ahead of the current share price.
Good entry point for great business
Only marginally above levels last seen a year ago, we view shares in SPSY at the current price as representing an excellent entry point after coming off on profit taking. This was not, after all, an ordinary year for SPSY but an excellent one, characterised by upgrades, contract wins and most importantly, a significant collection of major opportunities which the company is working through and any of which has the ability to be a game changer for the business. To name a few among many: (1) potential further new work for a G7 central bank (existing client), (2) potential wins from a major Asian central bank, (3) major prospective polymer substrate contract, (4) tobacco smartphone authentication opportunities (TruBrand). As a provider of advanced technology solutions for banknote, product authentication, and secure lottery transactions, SPSY is a highly specialised producer of proprietary equipment, solutions and services, with high entry barriers to match. It is well-invested, hence the enhanced DPS in recent years; and the balance sheet is strong, with $11.1m of net cash (excluding $1.1m of restricted cash) reported with the most recent (H1) results, underpinning future growth expenditure. Importantly, our forecasts only encompass firm business prospects / established contracts. With TruBrand conducting tests in China (see above), this may have affected sentiment, but if so this is misconceived, since (a) this potential future revenue stream is immaterial or non-existent in our forecasts and (b) SPSY is not a one-trick pony – the pipeline is strong with other and major opportunities.
Spectra Systems (SPSY) – Corporate – Asian Central Bank – Into the next round
Market Cap £70m Share Price 155p
Spectra is a provider of advanced technology solutions for banknote, product authentication, and secure lottery transactions. In what we believe is a significant step, Spectra has qualified its banknote authentication products for the next stage of evaluation by a major Asian central bank. This will involve a multi-million note run test, this to be undertaken over the next ten days. Assuming Spectra's traction with the central bank continues, the client will then evaluate the entire technology package from Spectra, along with the other qualifying vendors.
Spectra Systems (SPSY) – Corporate – Asian Central Bank – Into the next round | FIH Group (FIH) – Corporate – Sea-Lion newsflow – new partner underpins major spend, FIH to benefit
Companies: Spectra Systems Corporation (SPSY:LON)FIH Group plc (FIH:LON)
This morning’s announcement from SPSY of the five-year renewal of a service contract with a long-established and substantial G7 central bank client underpins yet more an already strong relationship, with the client’s use of SPSY’s materials in the future further locked in. A relatively small value agreement (though it has scope to grow), it carries, therefore, an important message. The contract relates to routine maintenance and will run for five years, layering on top of other existing service agreements with a major banknote printer with a global reach as well as additional service contracts with the G7 central bank. Spectra is a provider of advanced technology solutions for banknote, product authentication, and secure lottery transactions. As such, it is a highly specialised producer of proprietary equipment, solutions and services, with extremely high entry barriers to match. The company’s balance sheet is strong, with $11.1m (FY18: $12.6m) of net cash (excluding $1.1m of restricted cash) reported with SPSY’s H1 results last week, potentially supporting many future growth options for SPSY. This is an exciting time for SPSY, with many opportunites (detailed in our full note published September 24th).
Spectra Systems invents, develops, manufactures and markets highly specialised technology-based systems and consumables used for the authentication of banknotes and the protection of assets and products. Based in Rhode Island USA, Spectra has an enviable track record of highly visible, high margin revenues yielding consistent profitability and dividends. WH Ireland estimates capture near-term highly predictable revenue only. However each year Spectra typically receives additional orders resulting in upgrade cycles. Further, beyond our near-term estimates, Spectra is close to commercialising numerous other opportunities, with the ability to more than double the profitability of the company. This note adds more colour to those prospects. FY2020E estimates follow our tradition of being set conservatively, only incorporating existing contracted or highly probable repeat sales. Our new fair value estimate is 210p.
Spectra Systems-Interims – H2 underpinned – Record FY earnings, FV +40% to 210p | Pennant International-A river to cross, but a bridge to get them over it; strong strategic focus | Getech-Interim Results
Companies: Spectra Systems Corporation (SPSY:LON)Pennant International Group plc (PEN:LON)
Spectra is a global leader in machine-readable high-speed banknote authentication, brand protection technologies, and gaming security software. The company has announced funding approval for a $1.3m contract with a G7 central bank to deliver three advanced quality control units in 2020. In addition, a long-awaited opportunity from an Asian central bank is causing Spectra to bring forward manufacture of materials for a G7 customer into FY2019 to create anticipated in-house testing and production capacity for the Asian central bank. As a result, our profit estimates for FY2019 and FY2020 are upgraded by 13.6% and 4.5% respectively to a record $5.0m and $4.6m with further significant additional value creation opportunities beyond FY2020. The shares trade on FY2019E EV/EBITDA multiple of 9.6x, undemanding when set against other IP-led businesses. Given the continued quality of earnings, we see near-term fair value at 150p.
Caspian Sunrise (CASP) – Corporate – Interim Result | Spectra Systems (SPSY) – Corporate – New QC equipment, Asia news and PTP/EPS upgrades | i3 Energy (i3E) – Corporate – New NED
Companies: CASP SPSY I3E
As a global leader in machine-readable high-speed banknote authentication, SPSY’s achievement in developing a highly secure polymer substrate – a unique, new product – has the potential to unlock substantial commercial rewards for the company. The new product, unveiled by SPSY at the start of August together with a ten-year supply agreement to its development partner, a major polymer supplier, has now been highlighted in a key industry publication. Important points that arise are (1) the extent of the opportunity, with banknote volumes including SPSY’s feature which could top 10bn notes per year; (2) the size of the polymer substrate market, which is projected to grow nearly three-fold in the next five years; and (3) SPSY’s likely ability to use its unique (in polymer notes) Level 3 covert feature to enforce a major competitive advantage in this growing market. Although the immediate opportunity has taken the form of a partnership and supply agreement with a major company, we have not included this potential in our (conservatively-based) forecasts. Compared with many IP-led businesses, SPSY’s c.17x PE is by no means challenging, particularly if we allow for c.22p in net cash, which in turn robustly underpins our 150p fair value assessment.
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The group’s year-end update points to stronger than expected Q4 trading, boosted by robust sales in North America that translated efficiently to upside on profitability expectations. Cash performance has once again been stellar, resulting in net cash of $35m, considerably higher than forecast, partly profit drop-through and partly from tight working capital management. We are therefore upgrading our FY 2020 EPS by 25% to 33.2ȼ. The strong cash position also results in a boost to the total dividend, giving a dividend yield of 6.7%. We raise our price target from 285p to 435p, based on a target P/E of 17.0x offering upside to the current P/E of 13.8x.
Companies: Somero Enterprises, Inc.
Today’s update confirms a strong recovery in H2 FY2020E as expected and a full year adjusted PBT at least in line with FY2019, despite a material impact from Covid and the depressed oil price resulting in a decline in Augean’s North Sea Services business. The FY2020E outturn demonstrates the resilience of the Group and the strong attractions of its growing EfW activities that now account for c.70% of Group profit. Augean is very well positioned in the EfW residue market and with c.40% of the UK’s hazardous landfill capacity. We forecast Group earnings growth of 15% and 21% for FY2021E and FY2022E, and expect further strong cash generation. EV/EBITDAs for FY2021E and FY2022E are 5.7x and 4.5x respectively, substantially below sector constituents and transaction multiples.
Companies: Augean PLC
Augean has proven to be resilient throughout the pandemic. In particular, the growth in processing incinerator ash residues from energy from waste (EfW) facilities continues unabated and additional new contract wins should drive improved returns in FY21. Management expects FY20 adjusted PBT to be slightly ahead of last year and we have marginally reduced our FY20 adjusted PBT and EPS estimates by 1%. Our FY21 estimates are maintained. Cash flow has been stronger than we expected, underpinning the indication that dividends should resume in FY21.
Although 2020 will probably go down in history as one of the most challenging years experienced during our lifetime, it will also likely be chronicled as one of the best years for the recognition and appreciation of science. As we entered 2020, the COVID-19 pandemic was in its infancy. However, it rapidly evolved through the exponential rise in infections and mortality globally. Much has been achieved during the past 12 months in the fight against COVID-19, but, as we enter 2021, there are considerable concerns about the emergence of a mutant version of the virus and the second wave that we are now facing.
Companies: AVO ARBB ARIX BBGI CLIG DNL FLTA ICGT OCI PCA PIN PHP RECI STX SCE TRX SHED VTA YEW
XPD is a well-established pan-European freight management and logistics operator. We have selected the Group as one of our Top Picks for 20211. The Group is based in the UK and focused primarily on providing integrated supply chain solutions for customers operating in the UK and Central & Eastern Europe (“CEE”). Trading has been resilient through the Covid crisis, and the benefits of acquisition integration and recent cost reductions are now coming through. Management has guided to an 18% y-o-y improvement in profit for 2020e. The balance sheet is strong with £4.3m of net cash reported at H1.
Companies: Xpediator Plc
Foresight Group , the award-winning infrastructure and private equity investment manager to IPO on the Main Market (premium). The Offer will primarily comprise a sale of shares by existing shareholders (c.80% of the Offer) with a smaller offering of new shares (c.20% of the Offer) to be issued by the Company. Details TBA. Cornish Metals (TSX-V: CUSN) intends to list on AIM. The Company is proposing to raise £5 million by way of private placement of new Common Shares (the "Fundraising") to advance the United Downs copper-tin project. The Company expects that Admission will become effective in February 2021. The Company's Common Shares will continue to be listed and trade on the TSX-V in Canada. VH Global Sustainable Energy Opportunities plc, a closed-ended investment Company focused on making sustainable energy infrastructure investments, today announces intends to launch an initial public offering of shares on the Official List (Premium) of the Main Market of the London Stock Exchange. Due by Early Feb.
Companies: TYM W7L BEG CRPR EUZ IRR CMCL FARN KETL AUG
Capital Limited has released its Q4 and FY2020 trading statement this morning. Overall it shows 2020 was a strong year for the company with revenue growing 18% and most other operating metrics growing positively with it – see Fig 1. We have adjusted our forecasts accordingly and also to take into account the mining services contract for the Sukari Mine which the company won late last year. The latter is a game changer for Capital and its investment case in our view; turbo charging revenue growth, enhancing margins and diversifying cashflow all of which should lead to materially higher valuation multiples. We raise our PT to 127p.
Companies: Capital Limited
Velocys has announced a change in the partnership developing the Altalto sustainable aviation fuel project with Shell moving on and Velocys now splitting the project 50/50 with British Airways. Despite being no longer formally involved, Shell remains supportive of the project in broad terms. British Airways continues to view the project as vital to its net zero target.
Companies: Velocys plc
Today’s positive trading update provides further encouragement for investors. The shares have been appreciating steadily on the back of last month’s fund raise and acquisition, followed by a major contract win and the £2.5m sale of the remaining RTLS stake, which had previously been largely written off. Both FY20 revenue and adj. LBITDA are better than forecast and YE net cash is particularly healthy. The integration of OSPi is underway, with all staff already transferred. We adjust FY20 forecasts and reiterate future forecasts. Future cash expectations are lifted by the higher YE balance as well as the sale of the remaining RTLS holding.
Companies: IQGeo Group PLC
Directa Plus has had its contract with OMV Petrom extended and increased. The contract, initially awarded in July 2019, was for the provision of decontamination and oil recovery services using the Company's proprietary Grafysorber® technology. The initial value of the contract was €150k (of which €75k was delivered and invoiced in 2020) and this has now been increased to €410k, the balance of which is expected to be fulfilled by June 2021.
Companies: Directa Plus Plc
The group has announced an extremely positive trading update as it completes its first half. Following a positive Q1, Q2 has maintained momentum resulting in a record profit for the half year, significantly more than we had forecast for H1 and almost achieving the full-year expectation. Restructuring cost savings have also assisted gaining double-digit RoS. It also signalled a return to the group’s previous dividend policy. As a result, we upgrade our FY21 forecast with a 39% in in EPS to 19.9p. We also raise our PT from 130p to 178p, in line with the uplift in EPS, which remains a conservative target P/E of 9.0x. ALU is currently one of the lowest rated in the sector, offering a currently very attractive 4.4% dividend yield.
Companies: Alumasc Group plc
Volex has reported interim results that are in-line with expectations following a strong trading update in mid-October. Of far greater significance is today’s announcement of the proposed acquisition of DEKA for a consideration of up to €61.8m on a debt free basis. DEKA is a leading and highly profitable power cord manufacturer, strategically located in Turkey, that serves leading European white goods manufacturers. The acquisition should close in early CY2021, subject to expected Turkish Competition Authority approval. We foresee 15% earnings enhancement in FY2022E with further opportunities for revenue synergies with Volex in the Far East as its operations also vertically integrate, production efficiencies increase and the cost of production falls. The statement highlights that pro forma net debt/EBITDA remains under 0.4x and this provides scope for further bolt-on acquisitions alongside a new $70m RCF and $30m accordion, also announced with the interims.
Companies: Volex plc
A £10m fundraising expedites the Protos project and opens the way for the £10.2m Peel warrant exercise in the current year. The funding will also give the company additional resources to pursue international opportunities. Adjusting for the raise and some timing differences, our UK only base valuation rises from 5.0p to the raise price of 5.5p and we see existing international opportunities taking this to 7.5p (from 6.9p) and including opportunities in Europe this could rise to 12.1p (from 11.2p).
Companies: Powerhouse Energy Group PLC
2020 ended with two positive moves for carbon capture and storage (CCS) which should benefit Velocys clients. In the US, the signing of the COVID 19 stimulus bill extends and adds support for CCS in the US where the Bayou project is working with CO2 offtaker Occidental to deliver a negative emissions project. The UK government has also published guidance on CCS funding making this option an additional opportunity for the Altalto project. Velocys remains one of the very few opportunities for investors to play negative emission technology. We see both these moves improving the operating environment for the company’s clients and their projects, stimulating demand for the Velocys technology.
Journeo is a specialist provider of information systems and technical services to the transportation sector. This morning, the group has announced that under its existing Transforming Cities Fund framework contracts, it has received further orders for its advanced public transport information systems.
Companies: Journeo plc