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Scisys on a mission for highly profitable growth

The supplier of bespoke software systems to the media, space, defence and commercial sectors has won a raft of contracts since mid-December and boasts a record order book
January 21, 2019

If there was any uncertainty that Scisys (SSY:175p), a supplier of bespoke software systems to the media, space, defence and commercial sectors, would be adversely affected by the UK’s exit from the EU, then the company has quashed the sceptics in emphatic style.

In the past five weeks, the company has won six major contracts, including an 18-month award worth €11.2m (£10m) from Thales Alenia Space France, the prime contractor to the European Space Agency (ESA), for work on improving security and cyber resilience capabilities in the next phase of the Galileo programme.

Galileo is Europe's global navigation satellite system, providing a highly accurate, guaranteed global positioning service under civilian control. Scisys also won a €3m initial order from Thales Alenia Space France and a €5m contract funded by the EU and ESA from a prime contractor on other segments of the Galileo programme, underlining the space division’s position as an expert software supplier to Europe's global navigation satellite system. The decision to re-domicile the parent company to Dublin to protect EU-funded work proved decisive in securing all these contracts.

Scisys also won a four-year contract worth €2.8m for work on maintaining the operational status of the automated software system that supports individual spacecraft missions from ground stations on an ESA-funded project. In total, the company has won contracts worth €23.3m in the space division alone since mid-December, the latest being a €1.3m award with Airbus, the prime contractor to the ESA and the European GNSS Agency, for developing EGNOS V3, Europe's regional satellite-based augmentation system, which improves the performance of global navigation satellite systems, such as GPS and Galileo.

The raft of contract wins not only boosts the last reported record order book of £97m, but de-risks expectations that Scisys can deliver a 15 per cent boost to both its pre-tax profits and EPS to £5.3m and 14p in 2019 on revenues of £59m, as forecast by analysts at broking house FinnCap. I would also flag up that the company’s net debt has been slashed from £9m when I first advised buying the shares 15 months ago, at 102p ('Tune into a media play', 11 Oct 2017), to £3.3m by last summer, while at the same time the board has maintained a progressive dividend policy. Analysts predict the payout per share will be raised from 2.2p in 2017, to 2.4p in 2018 and 2.6p in 2018.

The deleveraging of the balance sheet, a growing record order book and the slew of EU-funded contract wins, should give investors confidence to value the shares on a far higher rating than a forward PE ratio of 12.5 for 2019, one reason why I believe fair value is now around 230p, having last advised buying them, at 145p (‘Exploit a mispriced Brexit winner’, 24 Oct 2019). Buy.

■ Simon Thompson's new book Successful Stock Picking Strategies and his second book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. The books are being sold through no other source and are priced at £16.95 each plus postage and packaging of £2.95, or £3.75 if you purchase both books. Details of the content of both books can be viewed on www.ypdbooks.com.