Shares in surveillance technology specialist Synectics (SNX) may have come off the boil since early may, but these results are likely to spark investor interest again. In the six months to end-May, underlying operating profits rose 27 per cent to £3.6m on sales moderately ahead. But perhaps the most important ratio was an increase in underlying operating margins from 7.4 to 8.8 per cent. That's because the company has a three-year target to double margins.
So how has it been achieved? The answer has been the ability of the main video-based electronic surveillance systems division to win bigger contracts and sell more of its proprietary software. In the latest trading period, revenues in this unit jumped 24 per cent to £22.9m while underlying operating profits accelerated by a third to £3.63m. Operating margins improved 1.2 percentage points to 15.8 per cent helped by strong demand from oil and gas platforms in the Middle East and Far East. This more than offset a 15 per cent fall in profits at the company's electronics security systems business, reflecting a focus on higher margin and better quality contracts.
And the good news is set to continue. Synectics forecasts that it will "produce a further strong performance in the second half". On that basis, broker Westhouse expects 12 months sales and pre-tax profits to rise from £77m to £84.6m and from £5.7m to £7.1m respectively to drive adjusted EPS up from 25.2p to 31.8p .
SYNECTICS (SNX) | ||||
|---|---|---|---|---|
| ORD PRICE: | 405p | MARKET VALUE: | £71.2m | |
| TOUCH: | 400-405p | 12-MONTH HIGH: | 480p | LOW: 272.5p |
| DIVIDEND YIELD: | 2.0% | PE RATIO: | 14 | |
| NET ASSET VALUE: | 212p* | NET CASH: | £5.2m | |
| Half-year to 31 May | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 38.4 | 1.70 | 7.3 | 2.50 |
| 2013 | 40.6 | 3.26 | 15.3 | 3.00 |
| % change | +6 | +92 | +110 | +20 |
Ex-div: 21 Aug Payment: 20 Sep Aim: Support services. *Includes intangible assets of £21.1m, or 120p a share. | ||||
