SRT Marine Systems LON:SRT, the AIM-listed engineering firm that builds maritime surveillance, security, management and safety products, and integrated systems, has been charting choppy waters since we last wrote about the marine defence and security firm.
Since November 2022 the company’s shares are down 16.4%, opening the week at 30.5p. However, in the intervening period, SRT experienced a high tide of 68p in June 2023 and low watermark of 17p in June this year. The market reacted savagely to press reports in April from the Philippines, where questions were raised about the transparency of an international tender to supply surveillance equipment to the country’s IMEMS fisheries project. After investigations by the Ombudsman, SRT and its CFO Richard Hurd were cleared of any malfeasance. However, the Ombudsman recommended further investigations into CEO, Simon Tucker and other agents outside of SRT.
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SRT’s problems were compounded in June when management announced that two project revenue milestones in its systems business had slipped and would move from this year to the start of the next financial year. The customers in question were a Middle Eastern coastguard and a South East Asian coastguard.
Tucker said at the time: “[…] I take full responsibility for the ups and downs of the share price [and] we’ve seen some reactions recently to some short-term events, for which I apologise and wish it was different. But I believe it’s one of those times, often the case, where the share price is not reflective of actually where the business is…”
As previously reported, SRT Marine Systems is a global leader in maritime domain awareness technologies, products and systems, with two divisions: Systems and Transceivers. 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.
Tucker explained: “[…]We are seeking to be the dominant player in a new market that is forming – the digital maritime domain awareness market – and to do that we have had to develop some pretty complex technologies, and from that sophisticated products [and …] we have the advantage of nearly a decade of accumulated experience, products and technologies which gets us to the place we are today, where we can talk about USD180m and USD200m contracts […] that’s not something that happens overnight, it takes a lot of time.”
SRT Marine Systems CEO prefers to keep shareholders informed
He said that the company is starting to take off, “although some of you might not think that.” The CEO said that SRT is prepared to talk about forward contracts that are yet to be fulfilled, but then it goes over to the governments SRT is negotiating with, and Tucker said it is hard to predict what a government will do and how long it will take, but: “[sometimes] we get that wrong, either it’s too late or too soon, but I would rather communicate about what is coming and [that] we have [secured], for example, a substantial new Middle East contract sometime this year, but the government may decide to do that in two months or twelve months and they decide that independently of us. But I’d prefer to speak about forward business rather than give [investors] a black hole of information until everything is fully done.”
The delays, however, put a GBP14m black hole in SRT’s revenues for this year. The money isn’t lost, it’s just been held up by the customers’ bureaucratic and administrative processes, so will lead to a loss in this financial year, but will be bumped into next year’s accounts. In March, SRT moved its year-end from 31st March to 30th June.
The Middle Eastern contract that has been delayed is worth GBP40m, and SRT has finished GBP16m of the work by completing Phase One. Phase Two is worth another GBP12.5m and Phase Three is worth GBP11.5m and SRT hopes that Phase Two will kick off in the second half of the year. The client amended the scope of the project a number of times, and this slowed progress meaning GBP9m of revenue will not be secured this year due to the logistics of physical delivery and customer acceptance. Phase Three will commence in 2025.
The South East Asian contract is worth GBP140m and is dependent on an inter-government loan between UK Export Finance and the country. Usually export credit agreements take six to nine months to complete, but this one has taken more time than anticipated. Tucker said that the bankers involved are confident of completion, but all parties will have to wait for the slow wheels of government to turn. On completing, SRT is expecting GBP45m from the loan, but this is likely to arrive early on in the new financial year.
Shareholders have had their patience tested by the slowness of SRT fulfilment, something Tucker says is out of the company’s hands. He also regarded the accusations against him regarding the Philippine contract as baseless, and was confident of the Ombudsman ruling in his favour.
Confidence on uptick in deal flow
Some shareholders may have called time on SRT in the past few months, but on a longer-term basis, the company seems to be in fine fettle. It is still ‘one to watch’ at The Armchair Trader. Tucker is confident on an uptick in deal flow in the short- to medium-term. He said: “In the Middle East region there are two contracts we see coming up, one [a USD9m contract] is with an old existing customer that is very dear to us; the second is for a couple of hundred million dollars in another country and there have been some recent changes there and they really want to crack on with their maritime surveillance system. We have a team in country doing site surveys to finalise the proposal and that suddenly seems to have leaped forward and will probably start to crystallise at the end of this year.”
The company also said that maritime security contracts in South East Asia worth USD50m are in the offing from next year. There is also a potential African client with sea and lake control issues looking for a maritime surveillance system with a potential contract value in the region of USD200m
SRT’s transceivers business is also expanding its market penetration. The company explained that the late start to the boating season due to the adverse conditions means that sales are lower than last year, but gross margin contribution the same as the company’s cost of production has normalised. SRT expects sales to pick up as the season progresses, as well as see the effect of some new regulations for vessels to install AIS.
The engineering company successfully completed a fundraising exercise this year, issuing GBP10.5m in an equity placement and retains GBP16.7m of headroom on its secured loan note programme.
Despite recent setbacks, in our view SRT remains a company with significant potential. With a strong order book on the horizon and a proven track record in maritime surveillance technology, the company is still well-positioned to capitalise on the growing demand for secure and efficient maritime operations. While shareholders have endured a period of volatility, in our view the long-term prospects for SRT still appear promising.
