It is hoped that the announcement, expected on Monday, will confirm FAA approval for the use of sensors to detect stress cracking around the WIFi dome. It is also hoped that there is full reliance on the sensors & that physical inspections are rarely required.
Let's do some maths. When sensors are approved throughout the aircraft & this WiFi approval should be the stepping stone for that to occur, the expected licence fee for a tier 1 airline was $10-$15 million. Now let's break that down. Assume we have an airline with 500 aircraft fully fitted with sensors & paying a $10 million licence fee per annum. That equates to $20,000 per aircraft so let's be ultra conservative & call it $10,000.
Again, I believe being conservative, it takes one week per aircraft to be fitted with sensors. That means 500 aircraft = 500 weeks or near enough to 10 years. That means 50 aircraft per year x $10,000 = $500,000 for year 1, $1 million for year 2, $1.5 million for year 3, $2 million for year 4 & so on until year 10 & beyond $5 million per annum. Again note, this is less than half of what was originally expected.
At first Sydney AGM I was able to have a quiet beer with Toby Chandler, Will Rouse, Sam Wright & one other person. I was able to ask Toby how much would it be for an aircraft to be fully fitted with sensors. His answer was between $20,000 & $70,000. Now that did not include the WiFi dome.
Now, keeping in mind that Delta Air Lines will be the distributer of the sensors & will receive a discount so I suggest we work on a figure of $40,000 per aircraft.
If 500 aircraft are installed with sensors that would be 500 x $40,000 = $20 million.
That means that with the increasing licence fee each year & sensor sales, the 10 year revenue per tier 1 airline would be as follows:-
Licence fees for the first 10 years = $39.5 million = sensor sales of $20 million = $59.5 million, call it $60 million per tier 1 airline.
Assume SMN gets 5 tier 1 airlines on board which means revenue of $300 million for the first 10 years which averages at $30 million per year.
Now, I believe I have been very conservative in my estimates & the revenue could easily be twice that number.
On top of the above, you have every other aircraft in the world as a potential sensor recipient.
My original estimate of future earnings of $85 million would appear to be well within reach when you consider the licence fee costs are close to zero & the manufacture of sensors would be a very small percentage of their revenue.
SMN will now be able to go ahead with its cap raise & issue far fewer shares now than originally expected because of the potential rise in the share price. They should be able to get away with issuing less than 10 million shares. Calculating the number of shares currently on issue, the performance rights held by directors & the number to be issued from the cap raise, I estimate about 140 million shares will be the total on issue.
Now let's look at the future share price target. $85 million earnings, 140 million shares @ a P/E of say 30 = $18.21.
Okay, we now have a share price target of around $18.00.
Over time when SMN becomes a dull & boring regular dividend paying company, the P/E should come down to somewhere around 15 which means the share price would have doubled. Therefore, the longer term share price target is $36.00.
Would anyone care to debate my figures, as I did the maths in my head while trying to get to sleep last night.
Have I been too conservative or too liberal in my estimations?
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