It is rare that I would feature a company currently rated on almost 170 times its historic earnings – but this company certainly passes my future growth test.
That growth means that its rating will drop significantly in this current year, before falling to real value next year.
The declared mission of SRT Marine Systems (LON:SRT) is to help solve the global issues of maritime safety, security, and sustainability.
It is operating in a very strong growth sector and its potential for winning new business is immense.
I have successfully set Target Prices for the company twice before and I do believe that its shares could now progress to more than double today’s price.
The Business
Globally there are 26m vessels, 1.6m km of coastline and thousands of major ports.
Today, 90% of global trade by value relies on this vital infrastructure to be transported from one place to the next by sea.
SRT develops sophisticated wireless communication technologies, products and services that significantly enhance the safety and security of the global maritime domain.
In recent years, a new technology called Automatic Identification System (AIS) has been introduced by the International Maritime Organisation and adopted globally as the standard maritime domain information technology system.
This sophisticated and complex mesh network technology enables the precise identification and monitoring of all marine traffic as well as a platform to communicate other information and services applicable to the marine environment.
The company has deployed its internal wireless communication development abilities to create a range of AIS technology and product solutions which marine electronics companies can use to create their own unique AIS products.
Over the last decade, it has invested heavily in the creation of a wide range of best-in-class AIS products and a global network of customers each with their own established brands and sales channels.
SRT develops and sells a range of core technology modules and standard OEM products to existing marine electronics companies who wish to have their own AIS product range.
Market applications for the products range from leisure through to commercial and homeland security.
The group is the global leader in Automatic Identification System (AIS) based maritime domain awareness technologies, products and systems.
AIS is used around the world to enhance maritime domain awareness (MDA).
Its target market is the world’s vessels, the millions of buoys and the tens of thousands of ports dispersed across millions of km of coastline and over 370m sq. km of seas, lakes and inland waterways.
Today the principal activity of the group is the development and supply of integrated maritime surveillance, monitoring, management and safety systems used by coastguards, fishery authorities, infrastructure and vessel owners for the purposes of managing and controlling their maritime domain.
It provides high performance proven turn-key MDA solutions for applications for vessels, ports, environment agencies, fisheries, and coast guards that deliver enhanced monitoring, surveillance, safety and security.
Its strategy and business model is to address MDA market segments using a small set of innovative core technologies, and products and systems, which can be combined and customised into multiple product configurations and types, each of which address different MDA market segments.
The company is doing that through the development and application of innovative advanced digital technologies, products and integrated systems that deliver a new level of maritime domain awareness to vessel operators, coastguards, and fishery and environmental agencies.
• Security – it enables coastguards to maintain continuous surveillance and fully automatic AI-driven detection of suspicious and illegal activities.
• Safety – it enables ships to navigate more safely and efficiently, and when in trouble at sea to be rescued more quickly.
• Environment – it enables long-term sustainable fishing and protection of the marine environment, whilst also ensuring food security and the long-term productive livelihoods of fishermen.
The SRT-MDA System is a flexible and scalable integrated surveillance system solution that can be configured for either coastguard or fisheries use.
After many years of continuous development, it offers an extensive range of innovative functionalities and capabilities that deliver enhanced maritime domain awareness.
Of note is the group’s focus on multi-sensor and multi-platform network integration, data fusion, and management and intelligent analytics in the area of automated vessel detection and identification, along with specialist fisheries functionalities, such as aquatic modelling and electronic catch reporting and auditing.
The New Order Pipeline
The global marine domain is digitising and SRT is at the forefront of this market providing a growing range of solutions.
It is a global leader in maritime domain awareness technologies, products and systems.
Its products and systems integrate layers of proprietary innovative technologies and are trusted and used daily by hundreds of thousands of vessels, plus an increasing number of national government agencies, such as Coast and Border Guards to secure and sustain their marine domains.
Shortly after the year end, the group signed a new systems contract worth £140m to deliver an integrated maritime surveillance and intelligence system to a National Coastguard, which increased its forward systems order book to £160m.
The new systems prospects pipeline continues to grow and now contains prospects at various stages of the sales cycle with an aggregate value of £1.4bn, some of which could well convert into contracts in the coming months.
Upon the announcement of the 2023 results CEO Simon Tucker stated that:
“Our many years of technology, product and market investments are now starting to show in our financial results.
Our transceivers division grew by 60% and our systems division is back on track following a pause in government business during Covid.
We go into the new year with an expanded product range and distribution network, a forward contract order book of £160m and a new prospects pipeline of system contracts worth approximately £1.4bn.
This position reflects the early strategic decisions made to position SRT at the centre of these substantial global markets.”
First Half Outlook
In the first half of the new financial year, the group expected commencing the implementation of the next and final phases of its Middle East project, whilst the newly signed £140m National Coastguard contract, with associated revenue milestone completion, will commence first implementation milestones in the second half of the financial year.
The Equity
There are some 192.3m shares in issue.
The larger holders include Mr and Mrs Persey (16.28%), Hargreaves Lansdown Asset Management (11.38%), Directors (9.56%), David Brierwood (8.91%), Interactive Investor (7.91%), Mr & Mrs Laing (4.12%), JM Horne (4.08%), AJ Bell (3.41%), Barclays Private Banking (2.43%) and Amati Global Investors (2.03%).
Broker’s View – 100p Target Price
Analysts Kimberley Carstens and Michael Hill at Cavendish Financial (the newly merged finnCap and Cenkos Securities) are obviously very positive about the company.
They have a current price objective of 100p for its shares.
For the year to end March 2024 they have estimates out for group sales to rise 232% to £70.9m (£30.5m) taking its adjusted pre-tax profits up from a £0.2m loss to £7.4m in the black, lifting earnings almost thirteen times higher to 3.8p (0.3p) per share.
For the year to end March 2025 Cavendish has pencilled in £104.8m sales, £11.8m profits and earnings of 6.1p per share.
Now that is what I call growth and why I rate the group’s shares with a certain excitement.
My View – A Stonking Purchase
I am sorry for you if you have not already realised just how much I rate this group’s prospects.
Its marketplace is stupendous and its years of investing in and developing its technology are soon to pay off big time.
In early June this year the group’s shares hit 69p, last night they closed at just 48.5p, valuing the whole company at only £92m.
The company will be holding its AGM at Radstock, Somerset, next Tuesday morning, 19th September, ahead of which there should be an AGM Trading Update issued, which just has to be bullish considering all the recent contract wins.
I have absolutely no doubt that these shares will touch 69p again, probably before 2023 is over, and that would only see them at the foothills of the 100p that its company brokers have intimated.
(Profile 14.09.20 @ 39.5p set a Target Price of 50p*)
(Profile 07.02.22 @ 47p set a Target Price of 60p*)
(Asterisks * denote that Target Prices have been achieved since Profile publication)