Whilst it's history now, I think that it's relevant to point out a couple of facts that relate to director commitment to the company SMN. This marries up with my previous post referring to Bryant McLarty buying SMN Shares on-market after the FAA approval announcement yesterday. (And it goes some way to dispel some negative comments by shareholders who either have a separate agenda, or just don't understand how things work within companies).
Before the failed CR shenanigans late last year SMN acquired through it's wholly owned AEM subsidiary the Eagle Audio business. This was bought at extremely low valuation relative to prior earnings, despite SMN having minimal funds for the acquisition. In order to make the deal one of the SMN directors, Stephen Forman (who holds just under 1.8 million shares) made the personal decision to provide US$800,000 as security to HSBC for extra loan funds. In this time of "all for oneself" in my opinion it was an extraordinary and selfless act, that demonstrated his commitment to the company.
I asked him about his decision, and his view was that the Eagle Audio acquisition was a once in a lifetime opportunity to buy a highly profitable business at a very low price. And he had no qualms because he would benefit in time from the SMN profits down the track. A rare insight to the man!
Secondly, during the problems faced through the the failed CR attempts, the company needed to maintain cash liquidity, because the businesses were expanding in AEM, the company was moving to a larger streamlined facility in Canada, Eagle Audio was being relocated, and a Federal Court order was made for SMN to pay $0.5 million past expenses to Tulip Bay Holdings related to the CVM development arrangements.
The directors of SMN made a loan commitment to SMN for $0.5 million ultimately payable in shares from a future CR (this current CR). I spoke with two directors at the time, and each confirmed they would not allow SMN to run dry of cash funds at a time of importance, especially because the company was far too valuable, and was soon expecting FAA approval (which has now come to pass).
So, whilst each of the fundings detailed above are different to Bryant McLarty purchasing shares on-market, in their own right each shows the level of commitment and absolute BELIEF each of the directors has in SMN's future!
I should also mention that Stephen Forman has made a decision to leave the board at an appropriate time to be replaced by an aeronautical executive (possibly Rick Deurloo, recently appointed). Hopefully Stephen will remain as Investor Relations Officer with SMN.
It's just come to my attention that Bryant McLarty, a relatively new director on the board of SMN, and long time supporter of the company through his involvement with MacEquities, bought 100,000 shares in SMN on-market today at $1.05 per share.
There's nothing better than on-market purchases by a company director - letting his money do the talking! That's a vote of confidence in the company going forward.
Really fantastic news to hear that SMN has finally achieved its long sought goal of gaining FAA approval for its patented CVM technology. This has resulted in the share price movement up 41%, to 96 cents, on strong volume of 1.51 million shares (ASX only).
Many investing onlookers would say that they missed the boat, and then look elsewhere for the next opportunity. Well can I suggest that non-holders look a bit closer at the opportunity:
SMN, at today's highly inflated price of 96 cents, has a market capitalisation of a lofty AUD120 million - an absolute pittance, when you consider the ramifications of this CVM technology and how it is going to revolutionise the maintenance procedures for many models of passenger aircraft that fly around the clock - worldwide. Today's result is the culmination of exhaustive studies that have taken more than 20 years to develop what has now been accepted by the FAA as an alternative method of compliance for the detection and monitoring of structural defects at certain high stress points within aircraft.
Until this point there had been no other way to monitor the structural health in aircraft at points known to fail due to ongoing stress build up. The only means of detection was to undertake rigorous physical examination, requiring substantial aircraft downtime, including the removal of cover plates etc etc through the aircraft. Certain inspections can take an aircraft off-line for up to 4 days - just to inspect sections that might take fairly little time to assess.
This first FAA approval of the CVM technology as an alternative to physical inspection is for 1 application in Boeing 737 aircraft, for certain wifi dome structures, of which there are around 1,600 located in the USA, the largest market for aircraft. The global market totals just under 3,000 aircraft.
What needs to be understood, is that this first CVM application seems relatively limited, but actually the maintenance procedures for this one application are very time-consuming, and thus expensive. Aircraft carriers are prepared to pay significant amounts to reduce this costly maintenance expense. Whilst SMN has not provided the breakdown of fees, it is understood to include licencing fees, plus ongoing annual fees.
The approval of this first CVM application effectively signifies the commercialisation of its use throughout the aviation industry, and will ultimately result in significant ongoing annual revenue streams for SMN.
Consider this: The List price for one Boeing 737-800 is in excess of US$100 million! The US carriers, including Southwest, Delta, United, American run fleets of hundreds of planes. The CVM technology will allow the reduction in fleet size to some extent, because of the reduced maintenance downtime for physical inspections. Each plane reduced is effectively savings in the hundreds of millions (US$).
In summary CVM will provide improved aircraft efficiency, reduced maintenance downtime, and continuous stress monitoring that ensures increased safety - all highly sought after objectives. And the global aircraft market wants it!
SMN is only just at the cusp of this technological breakthrough, with more applications expected to be rolled out over the next 12 months. There is a possibility that Boeing will include CVM as an add-on to its new aircraft's, for certain applications, such as Aft-pressure Bulkhead location in certain models.
On a different subject SMN has been on the outer with investors due to two recent failed attempts to raise funds for its various commercial initiatives, that will immediately enable increases in workload, and thus revenue. Part of the reason was that investors have argued that the CR should post-date the first CVM approval, in order to reduce dilution.
My view is that today's announcement of FAA approval has been dampened somewhat by the knowledge that the CR is coming, and soon. Thus the share price movement today really hasn't fully captured the likely commercial ramifications that should progressively roll out over the next 12 - 24 months.
THEREFORE, it is my view that it is not too late to consider an investment in SMN, even after this price rise today. It's likely an initial investment will provide an opportunity to get in before the CR which will likely offer discounted shares. The directors confirmed with the earlier failed CR attempts that the aim was to reward existing shareholders rather than offer a placement to larger corporates and fund groups.
As a show of this CVM credibility, the Company recently announced the appointment of a highly experienced aviation consultant as a consultant, Dr Dennis Roach, one of the foremost experts in the structural health sphere. It is my view that he will ultimately join the company as its new CEO (but that is speculation on my part). In addition another highly experienced aviation professional, Mr Rick Deurloo, joined the board of SMN immediately before FAA approval was announced.
These two appointments by SMN demonstrate the credibility that this CVM technology has with the global aviation following.
And yet hardly anyone in the Australian investment community has heard of SMN, and it's worldleading CVM technology. That is another reason to suggest that it's not too late to consider an investment in SMN now, before the word gets out.
I have long believed that SMN has the potential to build a business with annual revenues and bottom line profits way ahead of ASX listed companies with market caps many multiples of SMN's current $120 million. That suggests to me that it is not too late to consider an investment in SMN before the larger CVM revenues gradually begin to roll out, and the investment community learns more about SMN.
Until the FAA approval the company has been unable to represent its CVM to the investment community as anything other than a dream. A great concept, but not reality. Today's announcement changes the investment case for SMN appreciably, and it's just at the beginning of its journey.
Anyone who has followed SMN will probably be aware that it's wholly owned Canadian subsidiary AEM is already a significant player in the area of avionics, and associated electronic applications. It's acquisition of Eagle Audio in the past 6 months has now been bedded down, and likely to bear fruit, in terms of increasing revenue in the coming quarters.
In all, SMN's time in the sun is only just beginning in my opinion, and thus its investment case only gets stronger now that the FAA has accepted its CVM technology.
Five of us here should be pretty stoked by the news. CR coming no doubt to help push this along.