I’m excited to have a major stake in this business.
I think shareholders are going to be rewarded tremendously with this opportunity over the next 6-12 months and beyond as the twin-turbo drivers of i)
revenue growth and ii)
multiples, start to expand and drive significant appreciation in the share price
off an exceptionally low base (sub $10M market cap).
Before diving further into my valuation, I want to give credit to some impressive investors who staked a position here even before I on this multi-bagger journey:
@madamswer (your red heart is well-earned),
@fareki (a red-heart in the making),
@webbj (seasoned top 25 retail investor on
***).
Firstly, let’s start with the
fundamentals. Spectur Limited (SP3)
currently operates in the Australian security surveillance industry, with a specific focus on
solar-powered security camera systems. Their core products are solar-powered deterrence and surveillance systems and associated cloud-based platforms. These systems incorporate cameras, lighting, audible warnings and a hardware IoT platform, remotely-accessed and connected via 3G/4G technology to a cloudbased platform. This is a unique and highly valued product with
remarkably high net promoter scores (NPS).
I’ve been impressed by the calibre of the management team of this business, particularly given the somewhat small scale of the company. The current MD, Gerard Dyson, is a seasoned Managing Director, with P&L experience in excess of $150m and teams greater than 800 persons across Advisian and Worley Parsons. Gerard has also led sales teams, developed and implemented strategy and rolled up his sleeves to deliver key pursuits and projects. One of his close friends was a Rhodes Scholar at Oxford University many years ago. He moves in the right circles.
Across the past few months, the company has undertaken some very smart strategic positioning. The business is pivoting successfully from an inbound sales model mostly servicing the building and construction sectors, to an outbound sales model targeting government, utilities and infrastructure. This pivot has been accompanied by strong improvements in the businesses financial position. The balance sheet was further strengthened during the past financial year with an estimated closing cash balance of greater than $2M at calendar year end. Spectur is well capitalised to execute on its growth plans.
The company has opened up many new growth avenues. Expanding product lines are enabling by an expanding range of ancillary devices, including additional visual AI based applications, remote sensors, lighting, switching and other products. This growing product line and the associated increase range of useage cases will lead to greater share of wallet with existing customers. Spectur also is gaining entry into major projects. The new STA6 platform can be integrated into VMS via a ONVIF compliant interface. What this means is that SP3 tech can be now used for cornerstone projects such as major smart city projects. Watch this space. Additional growth opportunities include new sales channels and an expanding geographic presence.
These four factors: management, strategic positioning, highly valued products and multiple growth avenues are propelling the improving performance of this business. As the company continues to execute on its opportunities, it allows reinvestment into the team and the product which further enhances the value prop to new customers, geographies and use-cases, thus reinforcing the flywheel. The exciting aspect here is that as the flywheel starts spinning, it picks up speed. The business now is past the initial start-up stages, the flywheel is spinning, sales rates are increasing, and the growth accelerates from here.
Secondly, let’s look at the
financial performance of this business and the
valuation. Across 2016 to 2020,
the company has grown the top line at a CAGR of 51%. Revenue across 2020 versus 2019 was flat, due to the COVID-19 situation.
The company has an explicitly stated target of >$20M in sales for FY2023 in addition to positive cashflow. This implies a CAGR of 61% across FY2020 to FY2023.
A deeper dive into the month by month sales for Spectur reveals an important insight;
following the slowdown in sales across the depths of the COVID pandemic, sales are now accelerating once again and resuming the previously strong growth trajectory. Not only are sales increasing, but the gross margin percentage is also climbing.
The market is starting to catch on, but this sleeping giant is yet to wake. What is this company currently worth?
The current share price trades at circa 8 cents for a market capitalisation of merely $8M. Don’t forget that they also have >$2M cash in hand, so the enterprise value of this company is actually circa $6M at the current share price. This is less than 1x current run-rate sales. After the October sales update, we saw more volume change hands than in this history of the entire company. This is an extremely bullish signal. In my opinion, we are in the early stages of a major impending re-rate for this company.
Pre-COVID this company was trading at 10 cents and that was before the strategic pivot and the new growth opportunities which have recently emerged.
The share price is now also above the EMA20, EMA50 and EMA200, all technical indicators have turned green, with constitutes a new bullish upwards trajectory. The EMA200 should provide support for the share price moving forward.
What was a resistance level has now become a support level.
What should this company be worth? Well, that is for all of us to independently decide as investors. Personally, even a conservative forecast well below the $20M AUD FY2023 sales target leads me to a share price estimate many
multiples higher than the current share price.
On 3-4x FY22e sales ($12M AUD), I arrive at an estimated fair value share price range of 34 cents to 45 cents ($36M to $48M MC). 34 cents is a 325% share price rise from the current level (8 cents). Arguably, as the company shifts to a recurring revenue model, a multiple well in excess of 3x could be justified. But, I will leave that for a separate post.
Is this performance guaranteed? Of course not. It relies on solid execution from the management team whom I trust and back. But, if this value is realised, this trajectory presents extraordinary share price upside for what I deem considerably disproportionate levels of risk.
This is the type of investment that I am looking for because I am seeking extraordinary share price performance. My ambition is to rise to the
top 10 of Australia’s private retail investors as ranked by percentage p.a. performance. I think my position in this company will help me achieve that goal.
Personally, I’m not selling this multi-bagger anytime soon. This story is just beginning.
Good luck everyone with your investing journeys,
T.E.P.
(20min delay)