This is @DCI_ToshLines Blog on Starcom Systems (AIM:STAR)

 

Starcom Systems (AIM:STAR) is a global technology company specialising in automated systems for remote tracking, monitoring, and management of fleets of vehicles, containers and people. The company provides complete solutions for real-time GPS fleet management and vehicle security applications, personal tracking, merchandise tracking, containers tracking and management and an online application.

www.starcomsystems.com

Financial snapshot

Mcap – £5.5m (as at 15th December 2017)

Shares in issue – 240m (c.35% is held by employees – Directors hold 24.4m/ Senior Manager’s hold 47.1m)

Revenues – $5.13m (2016) v $5m (2015)

Net cash used in operating activities was $0.17m (six months ended 30 June 2017) v $0.23m (six months ended 30 June 2016).

A General Meeting was held on 26th October 2017 to seek shareholder approval to raise working capital via the allocation of c.135m shares. It is important to note that the shares will not be allocated in one go, and will be issued as and when required.

The first placing of 36.5m shares was announced on 30th October 2017, raising £475,000 at 1.3p. The primary use of the net proceeds was to expedite completion of the large orders received from key customers and to ensure the timely supply and delivery of our products to those customers by year-end. £115k was also used to pay off YA II PN Ltd. Our non-exec Chairman took part in the placing.

 

Recent News

October 2017, we entered into a three-year supply and support agreement with Xplosive Solutions SA to sell Kylos Forever units for the protection and tracking of livestock in South Africa and Australia. The initial order was for 1,500 units, which may be increased under the agreement to 15,000 units per year (revenues of c.$4.3m).

September 2017, we announced a collaboration agreement with a major European industrial group (yet to be named). The group had been seeking an appropriate Track and Trace technology for its new monitoring solution for the logistics and transportation industry. Its requirement was for a single solution for tracking land, maritime and air freight, as well as for other logistics operations. Following extensive research and weeks of technological and business discussions between the two companies, Starcom’s technology, specifically its Kylos Air product, was selected as the most suitable device to meet the customer’s rigorous requirements. An initial order for 1,200 Kylos Air products was received, with furthers orders envisaged.

September 2017, our client Pinnacle in Kenya, has, at long last begun to connect the Helios units it purchased in 2016 and 2017 to our central control system. So far, 3,500 units have been connected and monthly SAS revenues have now started to be received as a result.

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August 2017, we announced an agreement with CropX for the supply of a number of units based on the technology of Kylos Air with agreed modifications to suit the needs of CropX and their innovative agricultural sensors. We have received an initial order for 5,000 customised Kylos Air units at a total value of $650,000. Most of this revenue will arise in early 2018 and, provided they are satisfied with the results, we would expect to secure follow-on orders.

 

Starcom Systems Plc Non-Exec Chairman Michael Rosenberg speaks to Share Talk

Published on Oct 23, 2017

 

News due

Further development of the partnership we have formed with the major European industrial group.

Outcome of the $multi-million United Nations tender (shortlisted and in the final 2). The tender decision is expected in early 2018.

Appointment of a new CFO.

Announcement of new revenue streams with the major producer of specialised electric motorbikes which was referred to in the May 2017 AGM statement.

Announcement of a contract with the major South African security company which was referred to in the September 2017 interim statement. They have selected Kylos Forever, our long-life track and trace unit, as a potential tracking solution and the tests carried out so far have been successful.

Outcome of the Tetis product tests following the initial trials by the major shipping company in Ghana and in Nigeria. If successful, there is the potential for our units being installed into their entire fleet of containers which is of a considerable size.

Further orders from the CropX agreement are expected to be placed between April 2018 and August 2018.

The share price has bounced between 1.25p and 2.5p throughout 2017.

December 2017, saw a ‘Golden Cross’ (bullish indicator) and the share price finally broke the key resistance point of 2.5p.

Prior to the recent contract wins and major agreements, the share price bounced between 3p and 4.5p, so there is short-term upside with the right catalyst(s).

Bulls view

  • As reported in the interim results report (September 2017), activity is at a high level and the Directors are confident that revenues for 2017 will comfortably exceed 2016.
  • We are debt free.
  • Cash burn was 26% lower (first six months of 2017 v 2016).
  • Gross margins increased to 47% from 38% (first six months of 2017 v 2016).
  • The recent placing was to help secure large new deals (not to keep the lights on).
  • MCap is cheap compared to tech peers who trade on multiples of £5-10m MCap for every $1m of revenues. Starcom is £1m MCap for every $1m of revenue.
  • BoD has skin in the game (c.35% of shares in issue held by employees) and took part in the recent placing which is a positive sign.
  • IPO was at 20p. Since then new products have been launched and several major agreements have been announced.
  • Great communication between the BoD and long-term shareholders.
  • The share price lows appear to be behind us, 2018 could potentially be transformational should we secure a large contract or two.
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Bears view

  • Recent GM to potentially place c.135m shares will be dilutionary for shareholders.
  • CFO recently left having been in the role less than a few months.
  • Contracts with significant revenues have yet to be secured.
  • The company continues to operate at a loss.
  • 2.5p has proved to be a tough resistance point.

 

What to expect in 2018

I have been invested in Starcom for 18 months now, and based on my own research I think the company is about to put the recent bad times behind it and enter into a transformational period.

With 2017 revenues expected to comfortably exceed 2016’s, with news due on many fronts such as the further development of our partnership with the major European industrial group and the outcome of the multi-million-dollar United Nations tender, and with the recent introduction of significant regulations (from bodies such as IATA/FDA/DGR) concerning the tracking and transportation of high value perishable, pharmaceutical and dangerous goods, I think Starcom and its world-class technology has the potential to return a large profit for investors from current levels.

I am certainly excited to see what 2018 brings to the company as it continues to move forward.

Register for the Share Talk investor evening, London 26th November 2019

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