This is @DCI_ToshLines update on Starcom Systems from his December 2017 publication LINK HERE
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.
Financial snapshot
Mcap – £6.4m (as at 8th March 2018).
Shares in issue – 256m of which 48m (c.28%) are held by senior management (as at 8th March 2018).
Revenues – $5.4m (2017) v $5.1m (2016), an increase of 6%.
Gross Profit – $2.1m (2017) v $1.4m (2016), an increase of 46%.
Gross Margin – 38.2% (2017) v 27.7% (2016), an increase of 10.5%.
Net Loss – $1.3m (2017) v $2.0m (2016), a decrease of 33%.
Net cash used in operating activities was $1.1m (2017) v $0.47m (2016), an increase of 134% mainly due to an increase in inventory and trade receivables levels.
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. Our Non-Exec Chairman took part in the placing.
The most recent placing of 14m shares was announced on 23rd January 2018, raising £315,000 at 2.25p. The company was approached by an existing shareholder to subscribe for 11m of these shares.
Revenues in Q1 2018 are expected to be $1.0m, an increase of 31% versus Q1 2017 ($765,000). The first quarter is typically the lowest revenue generating quarter. If this run rate is maintained for the remainder of 2018, revenues could exceed $6.0m.
Recent News
March 2018, the integration process of the Helios and the approval of STAR as an OEM supplier for a large electric motorbike manufacturer in the US was successfully completed in Q4 2017. The first electric motorbikes with STAR technology are forecasted to reach the market in Q4 2018, and it is anticipated that this will lead to further growth in unit sales during the following 3 years.
March 2018, through a partnership with one of the largest cash security and transport companies in France, STAR sold over a thousand Helios units in Q4 2017 which are now embedded in ATMs throughout the country. It is forecasted that several thousand more units will be sold in 2018.
January 2018, the tender process involving the UN project included a pilot scheme in Africa and in the US. The pilot was completed satisfactorily at the end of December 2017 and all customer requirements were met. STAR was one of two companies shortlisted (out of 15) for what is one of the world’s largest tenders for a hybrid (satellite connectivity with cellular) fleet management and security solution.
January 2018, STAR signed a three-year supply and support Tetis agreement with WIMC Solutions Inc., a US-based provider of products and services for real-time monitoring of international container movements. An initial order of 1,000 units was received and this may be increased to around 20,000 units over the next three years. If fully implemented and all units are connected, this has the potential value of approximately $4.5m, including SAS revenues.
October 2017, STAR 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, STAR 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, STAR’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, STAR’s 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.
August 2017, STAR 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. STAR has 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, STAR expects to secure follow on orders.
News due
Further development of the partnership we have formed with the major European industrial group.
Outcome of the $multi-million United Nations tender (short-listed and in the final 2).
Announcement of orders received from the major producer of specialised electric motorbikes.
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.
Further orders from the CropX agreement are expected to be placed between April 2018 and August 2018.
Watchlock Cube is planned to be launched in Q3 2018 and the Watchlock III during 2018. These products will introduce a true revolution in asset protection and monitoring.
Share price action/Charts
Throughout 2017, the share price bounced between 1.25p and 2.5p.
December 2017, saw a ‘Golden Cross’ (bullish indicator) and the share price finally broke the key resistance point of 2.5p.
February 2018, the share price reached a peak of 4p. However, the recent accounting error had an adverse impact on the share price and it dropped back to 2.5p with the former resistance point becoming a key support level. Any hint of good news and the share price should head towards 4p once again.
Bulls view
- 2018 has begun strongly, activity remains at its highest level, and the BoD are confident that 2018 will see good growth in both revenues and margins.
- If the Q1 run rate is maintained for the remainder of 2018, revenues should exceed $6.0m.
- Strong cash balance to support the timely supply and delivery of orders. The placing in January raised £315k and the exercise of 3m warrants raised a further £75k.
- In a recent industry survey (https://www.compassintelligence.com/a-list-index-in-asset-tracking.html) STAR was ranked in the top 15 companies in the world that support the fixed and mobile tracking of assets. A significant achievement as STAR was placed amongst some of the largest telecom and IT brands in the world.
- MCap is cheap compared to tech peers who trade on multiples of £5-10m MCap for every $1m of revenues. STAR are £1.3m MCap for every $1m of revenue.
- BoD have skin in the game (c.28% of shares in issue held by employees) and took part in one of the recent placings 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.
- New CFO was recently appointed.
- The share price finally broke the key resistance point of 2.5p and reached 4p.
Bears view
- Unfortunate errors were made in the Trading Update (released January 2018), as a result, a net loss after taxation was reported in the Final Results (released March 2018) as opposed to the expected net profit. This isn’t the first time an accounting error has been uncovered.
- Recent GM to potentially place c.135m shares will be dilutionary for shareholders.
- Contracts with significant revenues have yet to be secured.
- Company continues to operate at a loss.
- 4p proved to be a tough resistance point, similar to when the share price traded at that level in 2016.
What to expect in 2018
I have been invested in STAR for just under 2 years now, and following on from my first blog in December 2017, I remain excited that STAR can put the bad times experienced in 2017 behind them and they can deliver a transformational period for its shareholders.
With Q1 2018 revenues well ahead of Q1 2017, the signs are good that STAR will deliver a profitable 2018 (barring any more accounting hiccups).
News is 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. Trials have also been successfully completed with one of USAs largest electric bike companies. Securing a large order from any one of these opportunities will transform the business.
In my opinion, it is now time for STAR to deliver on what they have openly promised, and I look forward to seeing how that progresses throughout the remainder of the year.
I am certainly excited to see what 2018 brings to the company as it continues to move forward.
Author: @DCI_ToshLines
