02.01.2025
It has its eye on you - it knows what you are doing, where you are going – whether on a train, on the street, in a casino – or just about anywhere.
Synectics (LON:SNX) is a leader in advanced security and surveillance systems that help protect people, property, communities, and assets around the world.
The meaning of the word synectics is a problem-solving methodology that stimulates thought processes which the subject may be unaware.
The word comes from the Greek, for the joining together of different and apparently irrelevant elements.
However, for this group’s business activities, it is more than relevant.
The Business
Employing nearly 300 people, this Sheffield-based group has offices not only in the UK but also in Singapore, Macau, Berlin, and in Wheat Ridge, Colorado in the US.
The company’s expertise is in providing solutions for specific markets where security and surveillance are critical to operations.
Such markets include gaming, oil and gas, public space, transport, and critical infrastructure.
Its experience and technical excellence, combined with long-standing customer relationships, provides fundamental differentiation from mainstream suppliers and makes the company a stand-out in its field.
Latest Contract Wins
At the start of last November, the group announced that it been awarded further £2.2m of contracts as part of a framework agreement with National Grid, for security improvement works for 12 sites across the UK, taking the total of such sites up to 32 throughout its estate.
Later that month the group announced the award of two contracts, totalling £2.3m, for oil and gas projects in Qatar and Brazil.
The contract in Qatar, which is worth about £1.8m, will see Synectics supply North Oil Company, which is responsible for 45% of the country's oil production, with its innovative security camera station technology.
The second contract win was for Synectics to provide its specialist security and surveillance solutions for a Floating Production Storage and Offloading vessel in Brazil, with a contract value of approximately £0.5m.
On Thursday 5th December the company, having signed contracts with two new customers, announced that it had been awarded four separate contracts from customers in the gaming sector totalling $2.7m, covering the deployment of its flagship Synergy software platform into two leading gaming resorts in the Philippines.
At that time CEO and CFO Amanda Larnder stated that:
"Today's announcement demonstrates our positive momentum in the gaming market, and the continued demand for our innovative, market-leading surveillance and security technology.
We are delighted to be collaborating with two new customers in the Philippines, further expanding our footprint in the region.
Additionally, our continued partnership with PENN Entertainment demonstrates the enduring value and adaptability of Synergy in supporting PENN's complex security and surveillance needs across its portfolio."
Recent Trading Update
Less than a month ago, on Monday 9th December, this £63m-capitalised group issued a Trading Update indicating that its year to the end of November had resulted in a far better performance than the market was expecting.
The company stated that its adjusted pre-tax profits will be materially ahead of market expectations, which previously were for revenues of £55.4m and profits of £3.9m.
The group ended its FY24 with an order book of some £37.8m (£29.2m) and had year-end cash of £9.6m (£4.6m), while also having undrawn bank facilities of £3.0m.
The Equity
There are some 17.79m shares in issue.
The larger holders include Whitehall Associated SA (28.72%), Downing (7.79%), Quadnetics (5.83%), Dowgate Capital (5.82%), Hargreaves Lansdown (5.80%), Barclays Smart Investor (3.82%), M McHale (3.34%), AJ Bell (3.03%), and Stonehage Fleming Investment Management (2.70%).
Analyst Views
Upon the orders and the new Guidance, Allenby Capital commented that:
“Synectics continues to win new contracts, across sectors and geographies demonstrating the value of its Synergy software platform.
The company performed ahead of market expectations in FY24 and is well placed for FY25.”
More specifically, Rob Sanders at Shore Capital Markets reacted to the group announcing another material profit beat for the end-November year, reflecting strong trading in the second half, across all its markets.
“As the order book for FY25F and beyond continues to build, we believe that there remains the potential for a further significant uplift in group profits at some stage.”
His estimates for 2024 are for revenues of £57.0m (£49.1m), with adjusted pre-tax profits of £4.3m (£3.0m), lifting earnings nearly 43% to 20.3p (14.2p), and jacking up its dividend by 50% to 4.5p (3.0p) per share.
For the year now underway, he sees £61.7m revenues, £5.0m profits, 23.9p earnings and an even healthier 6.5p per share in dividends.
Jumping ahead into the year to end-November 2026, Sanders looks for £67.0m in revenues, £6.1m profits, earnings of 29.0p and payment of a dividend of 8.0p per share.
“Even though the share price has performed well over the last 12 months, we believe that the valuation metrics in the outer years, suggest there is scope for further significant share price upside.”
In My View
The response to the latest Update was very swift, with the shares being traded up to 359.50p at the best, an advance of 51p.
That was impressive enough to note because they had already risen from 135.50p at which they traded in February last year.
A couple of items of good news had kept the shares within the narrow 160p to 190p range for the following seven months, before creeping up to the 300p level before the Trading Update.
Despite that advance, which would put many investors off from getting into a new situation, I actually believe that the wind is really blowing in the Synectics sails and that its shares, now 352p, could put on another 50% within the next year or so.
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