Forum Topics SOP SOP Synertec Corp Ltd General Discussion
ValueJunkie
Added 6 years ago

Hi All, 

I'm currently reviewing Synertec as a potential investment. 

At this stage there is a lot to like: 

- the skin in the game from management as well as experience that they hold

- valuation is compelling looking at FCF and considering the cash held on the balance sheet. (If I can pick up shares on around a MC less cash FCF multiple of 5x I think that’s relatively good buying. Currently this ratio is c.5.75x.)

- a lot of the revenue is generated from repeat customers and who in many cases are blue chip companies which would indicate a quality service/offering.

- in my opinion infrastructure is going to a growing theme to generate growth in a low interest rate environment going forward anf you could argue that the business is positioned pretty well to take advantage of this theme.

Now my biggest concern iis that I think management overplays the revenue growth in FY19 a little bit in their announcements where the margin in the business is primarily made from the engineering services side of the business which actually went backwards revenue wise in FY19 $3,1m versus PCP $3.5m. Unfortunately, they don’t show the margins for the separate revenue streams. 

In terms of the long case for Synertec has anyone been able to mitigate the above or am I missing something? Looking through the announcements management appears to gloss over it without going into detail as to why there was a decrease in revenue for the high margin portion of their business. 

Would love to hear any views on this. 

Cheers, 

Value Junkie

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Wini
Added 6 years ago

Michael Carroll (CEO) presented at the Finance News Network the other day which provides a good overview of the SOP business in 15 mins:

https://www.finnewsnetwork.com.au/Presentations/FNN_InvestorEvents_2019/NovMel/SOP/index.html

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pardeep09
Added 6 years ago

Guys - Any thoughts on recently conculded AGM 

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Wini
Added 6 years ago

Hey mate, I went down to the AGM yesterday and overall my feedback from the day was extremely positive. There was no discussion of specific details regarding clients or work, but my take on management is that they are very professional and have a well thought out plan to grow the business over the next few years. Michael (CEO) explained the strategy of how they have strategically bid for work with clients that would build up their knowledge/IP that could then be used in other applications with new clients or integrated further with existing clients. This "R&D" is effectively expensed through the normal operations of the business, meaning short term margins would not be as strong. That said, it was explicitly stated the aim is to remain EBITDA positive. I asked about a dividend policy given the high cash balance and on-going cash flow positive operations, but David (CFO) stated they would prefer to invest in the business and are actively looking for strategic acquisitions. Another thing I found interesting was how active the board appeared to be with the operations of the business, in particular Leeanne (Chairwoman). While speaking with Leeanne and Michael after the meeting, Leeanne was almost as knowledgeable on the business as David. That was surprising given she was brought in as a non-Executive Chairwoman. I was also surprised at how many people attended the meeting, but found out later they were mostly employees who also own some shares. It's good to see they are invested alongside us in the business. So overall, no specific news to report, but I definitely came away more confident in the ability of this management team to grow the business over the next few years.

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DJthe1st
Added 6 years ago

SOP showing a bit of life lately - volume highest its been in a while and price up a little. Interesting. (Held)

Wini, are you accumulating still?

How about you Andrew - did you ever give any further thought to it?

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Strawman
Added 6 years ago

Still haven't got around to it sorry. Will have a look over the next results

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Wini
Added 6 years ago

I bought some more a couple of weeks ago, wasn't me today but very solid volume. Someone obviously keen to get in. I have booked flights down to Melbourne for the AGM, I will give you some feedback after meeting the team.

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