The next week and a half IMO presents as one last chance for current shareholders to top up on SMN via the Entitlement Offer at a reasonable price. Yes it would have been better to buy shares just prior to the announcement of FAA approval, but at that time we were still devoid of a vital piece to the jigsaw puzzle. We now have that piece, which unlocks the commercial opportunity for SMN.
I do recognise that market conditions change, at the moment daily, due to exogenous factors that have unnerved many investors. And that also needs to be considered, but having gone through a highly challenging couple of years for all aviation related stocks, and with SMN effectively unscathed (and in fact enriched by the acquisition of Eagle Audio at a cheap low earnings multiple) the company has set itself up to become a very strong business post-pandemic.
Almost all the ingredients are set in place, and the first sniff of a commercial deal with respect to the Wifi CVM could spark a rush.
The only other requirement is sufficient funding to get the locomotive moving, and that's what this Entitlement Offer ensures.
There is no doubt there will be less than 100% take up of the Offer by current shareholders, for whatever reason (including lack of funds, small holdings, lack of interest etc), but this does provide an opportunity to increase your shareholding by subscribing for Shortfall shares - my intention will be to apply for some Shortfall shares, but I must admit I have a considerable exposure already.
This Entitlement Offer, if fully subscribed (including Shortfall shares) raises $9.2 million gross, that effectively underpins funding requirements on a number of fronts, so that the company will enter this next phase of its development in a strong financial position. Certainly the earlier attempts at CR probably wouldn't have had the same likelihood for success because the FAA approval remained outstanding at that time. Beyond the CR things to consider that SMN offers:
1. SMN has a growing revenue base from its developing AEM product line. Many of those products have been developed with the support of existing customer relationships. That ensures a very solid competitive advantage from any other manufacturer. In the case of some product lines, including through Eagle Audio, there are STC's that actually protect ongoing sales.
AEM itself is a growing and profitable business unit of SMN.
2. CVM is patent protected, plus protected by the necessity to have FAA approvals. And development has taken more than two decades. That provides a Moat, as (I think it was) Tagor illustrated is as wide as the Pacific Ocean!
3. The aviation industry is a mega-market, of many trillions, and that industry has been yearning for changes to maintenance procedures that will reduce operating costs and minimise downtime. SMN's CVM provides at least part of that solution.
4. SMN already has an agreement with Delta Airlines, and advanced discussions with other airlines and OEM's (including Boeing, Embraer, Airbus, Sikorsky).
5. SMN share structure remains very low, assuming 100% take up under the Entitlement Offer, with only 133 million shares, plus 5.2 million two year options (exercisable at $1.20).
Most of the Top 20 shareholders have been holding for many years, and IMO are unlikely to sell out for any minor jump in share price.
Another interesting observation on HC are the considerable number of long term shareholders waiting for the eventual commercialisation of CVM - there are many having held for more than 10 - 15 years! (Whilst I've followed the company for 20 years I've only been a shareholder 6 years).
6. Whilst some may disagree (based on some fairly negative posters who apparently hold shares) IMO the board and senior management have set the company up perfectly for a successful and highly profitable business enterprise., that should ultimately reward all shareholders.
Dr Dennis Roach joined the SMN executive team in a consulting capacity in January 2022. Dr Roach spent 35 years at Sandia National Laboratories where he was Senior Technical Fellow and the Chief Engineer in the FAA’s Airworthiness Assurance Center which Sandia Labs operated for the Federal Aviation Administration. Dr Roach is recognised as a global structure health expert, his addition to the SMN team adds expertise to the company that will be critical to the further development of CVM™ solutions.
In addition Mr Rick Deurloo will join the board of SMN as a non-executive director, effective 1 April 2022. Rick has more than 23 years of experience in management and sales in the global aerospace industry and is currently SVP & Chief Commercial Officer for Pratt & Whitney.
7. SMN remains a small cap, relatively unknown by the broader ASX market. There are very few larger funds groups in the company at this time. That situation will change dramatically as the business development starts to roll-out. There's no doubt in my mind that once sales success gets momentum the share price will quickly rise way beyond current levels.
All the pieces are now falling into place, to complete the picture:
IMO if a significant commercial contract is announced for the CVM it is likely that the share price will surge considerably. And that can happen at any time from now!
SMN Price at posting:
93.5¢ Sentiment: Hold Disclosure: Held
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