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SRT Marine Systems confirms £600m contracts in pipeline

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SRT Marine Systems LON:SRT, an AIM-listed engineering firm that builds maritime surveillance, security, management and safety products, and integrated systems, published its unaudited interim reports for the half year to 30th September today (14th November).

As previously reported SRT the Bath-based civilian defence systems manufacturer, founded in 1987, saw a 300% increase in revenues year-on-year to GBP18.8m from GBP4.7m in 1H21, after a series of successful government contract wins.

The company develops and provides integrated maritime surveillance, monitoring, management and safety systems which are used by coastguards and fishery authorities for the purposes of managing and controlling their maritime domain. The SRT Vessel Monitoring Systems (VMS) system enables governments and national authorities to be able to reliably track, monitor and manage fishing vessels of any size and type in real time without range limitation at optimal cost.

Small boat tracking

SRT’s specialisation is the tracking and monitoring of small boats, an issue that has come into focus in the UK as the government tries to stem the tide of illegal migration by small boats from France to the south coast of England. This morning, the UK Home Secretary, Suella Braverman announced that the UK government had signed an expanded deal with the government of France to try to stop people crossing the English Channel in small boats. The costs to the UK taxpayer increased to GBP63m from GBP55m and this will increase the amount of French police patrolling the beaches facing southern England from 200 to 300 officers and pay for more surveillance drones.

SRT saw an uptick in business following Russia’s invasion of Ukraine earlier this year, but its main current focus is the Middle East, specifically the Persian Gulf, and Asia-Pacific, specifically the South China Sea, the East China Sea and the Philippine Sea. SRT includes the coastguards of Bahrain and the Philippines amongst its client roster.

The issue of small boats in these waters is a significant problem for governments in the region trying to stem illegal immigration, prevent illegal fishing and toxic waste dumping, stop smuggling of controlled substances or sanctioned materials.

The increase in revenue saw the company report a 38% gross profit margin, an improvement on the 36% gross profit margin for 1H21. This translated into GBP2.1m profit after tax, quite a turnaround from the reported GBP3.1m loss after tax reported in 1H21.

Leading global position

Kevin Finn, the company’s chairman said in a statement: “This has been an excellent start to the current financial year and sets a clear financial and operational direction for our business that we expect to continue into the future. The digitisation of the marine domain, from integrated coastal surveillance systems to environment monitoring and autonomous navigation has only just begun and our accumulated investments over many years have placed SRT in a leading position in this global market.”

In a previous interview with The Armchair Trader+ chief executive, Simon Tucker explained that SRT has spent eight years perfecting its maritime security systems, combining a network of coastal sensors with artificial intelligence, satellites, light sensors, radar technology and the ability to track low frequency signals such as mobile ‘phones to pinpoint individual boats, identify suspicious activities and: “use the technology to point a patrol boat to where the bad guys are,” he said.

Finn continued: “Cash balances were GBP2.4m as at 30th September 2022, of which GBP0.9m was restricted to support system contract guarantees. As at the period end, we had substantial receivables of approximately GBP13.4m, most of which is related to our systems business. Included in the receivables balance is a significant amount which was received and banked by way of a government issued cheque from a systems customer just subsequent to the period end. It is not unusual (although not always the case) for our government customers to pay us by cheque, with full cash clearance after banking typically taking between 10 and 90 days depending on the specific customer and country. It is our experience over many years that our system customers are reliable payers.”

Outstanding contracts

Tucker explained that he expected the next half-year to be an even better period, as several outstanding contracts with the civil defence forces of governments in Asia and the Middle East were agreed but were waiting to be paid-up. The contracts, from USD180m down to USD10m said Tucker, should come in the next three to six months. SRT has a recurring revenue model, supplying data for its customers as well as gaining revenue from systems sales. “The data we sell is the feed and food for the systems,” Tucker said.

SRT opened trading at 45.5p today, and within the first hour of trading had risen to 49p, before stabilising at 0900 at 48.5p, up 6.6% in the first hour of trading. The company has shown a 18.1% year-to-date return, and a 26.9% one-year return, with shares ranging between 24.5p and 55p over a 52-week period. The company has a market capitalisation of GBP82.2m

Finn concluded: “These results are now starting to show the benefits of the significant technology, product and market investments we have made over many years. The marine domain remains one where there is a significant gap in knowledge and these new technologies enable that gap to be filled, resulting in long-term growing demand for our products across the globe […] The opportunities for our systems business continue to grow, and the value of our validated pipeline of new system opportunities now stands at over GBP600m.”

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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