SRT – buy rationale

Having said on Twitter that I thought SRT – Software Radio Tech – offered good value, I thought I’d better offer up a rationale.

SRT was recommended early this year on TMF’s paulypilot pub NFSC (Nicky Fraser Share Competition), with a great writeup which garnered many recs. SRT makes AIS (Automatic Indentification Systems) for the maritime industry. It also develops radio tech. All this stuff is useful for maritime safety and homeland security.

AIS’s are being increasingly mandated, the stock was on a low PE, so it was pretty much a “can’t lose” investment. Not surprisingly, SRT was one of the most-selected companies in the NFSC, and the share price duly rose from about 26p at the beginning of the year to 35p at the end of Jan.

There’s nothing Mr. Market likes better than a good bit of “post-modern irony”, though. It turns out that sales of these systems is quite lumpy – something that wasn’t seen as a problem at the time. However, sure enough, the sales turned out to be lumpier than expected, with sales delays damaging the credibility of the directors and the company. There was also a placing in April of £2.6m at 27p to fund working capital, further annoying investors. But you can’t ramp up production without the necessary capital, right?

Predictably (with hindsight, of course), the share price declined from 35p at is peak this year down to 23p – actually lower than when it started at the beginning of the year.

The half-yearly trading update issued on 15-Oct-2012 looked pretty good, though. Some highlights:
* the Russian mandate opportunity (by which I mean a regulatory requirement) has now started to yield sales. “This marks the commencement of a significant market opportunity for SRT which is expected to be implemented over the next few years”
* in the EU Inland Waterway market, customers are waiting until the regulatory deadline of 31 Dec 2012 before installing.
* the second phase of the EU fishing mandate has a dealine of 31-may-2013 and affects up to 6000 vessels.
* partners in Asian, India and Middle East are conducting trials. “These are significant projects which SRT is confident will result in very large orders … timing is not clear … delays and changes can be expected”
* “For the first time we have also started to see real interest from Africa … markets are at a very early stage … addressable market is considerable, we would not expect to see material orders from this market until 2014 at the earliest”

In summary: “Our core business is growing steadily as we bring more products and mandate opportunities are now either entering their implementation phase and therefore yielding significant and more regular orders or are nearing the end of their evaluation phases and about to ente5r their implementation stage”.

Seems pretty bullish to me.

Digital Look puts it PE on 142, whilst Sharelock Holmes puts it on 8.5 On Digital Look, for y/e 31-Mar-2014, revenues are expected to grow 70%, and EPS by 177%, putting it on a forward PE of 6.3. Looks like an excellent buying opportunity – although I have no position in it.

In case you’re wondering, I continue to keep an investing journal – which I spend far too long writing – although it is now written rather than being posted. I’ll continue posting, but only rarely, when I think there’s some of the more interesting stuff to write about.

Happy investing to you all.

Looks like a buy to me. 23p

About mcturra2000

Computer programmer living in Scotland.
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