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Targeting value plays

Simon Thompson updates eight companies on his watchlist, including a technology group trading on five times earnings, and highlights three lowly rated and high-yielding companies in the financial sector

Aim-traded shares in SRT Marine Systems (SRT:28p), a global leader in AIS, an advanced identification communications technology used to track and monitor maritime vessels, rallied 50 per cent to achieve my 55p target price at the start of this year (August Alpha Report; and ‘Get on board for a profitable passage’, 20 November 2019).

Another buying opportunity has presented itself after the company announced the delay of two Middle East system contracts (aggregate value of £65m) that were scheduled to start during March. This is due to the respective governments' reprioritising their short-term operational focus on the coronavirus outbreak, a consequence being the restriction of movement of goods and people. It means that £14m-worth of revenues that SRT had expected to book in the financial year to 31 March 2020 in relation to the delivery of its GeoVS data centre systems (within the first few weeks of the contract signings) will fall into the 2020-21 financial year. The balance of the system will then be delivered across multiple milestones over an 18-month period.

The impact on the 2020-21 financial year will be to substantially increase SRT’s revenues and the directors will provide market guidance once these contracts are signed. Analyst Lorne Daniel at house broker FinnCap “feels that these contracts could see revenues exceed £50m to deliver pre-tax profits in double figures.” This means that the £43m market capitalisation company is being priced on four times likely net profit for the 2020-21 financial year even though the contracts have only been delayed due to a global issue. Buy.

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