Spectra Systems Corp. (SPSY) Forecasts Strong Earnings in FY 2019

  • May 31, 2019 BST
  • Team Kalkine
Spectra Systems Corp. (SPSY) Forecasts Strong Earnings in FY 2019

Overview

Spectra Systems Corp. (SPSY) is an established world leader in providing rated solutions comprised of engineered materials for authentication and hardware and software system for use in banknotes, product authentication, and gaming.  The AIM-listed company is amongst the world's leading suppliers of high-speed currency authentication sensors and an industry leader in the currency and document authentication markets. Its security software provides secure Internal Control Systems to lotteries, and its solutions are also used for authenticating and tracking well-established consumer branded products. The company's operations are differentiated in three operating segments: Secure Transactions, Authentication Systems and Banknote Cleaning.

Trading Update

The company in its latest trading update said that it expects profit for the year ending 31st December 2019 to surpass market expectations, as the company was able to provide a positive trading update for 2019. The positive guidance reflects a product mix which allows for sustained strong profitability, including a combination of a strong first half of the year optical materials sales and central bank sensor related research funding. The funding contract will begin in the second quarter of 2019 and is expected to extend through 2020 and includes central bank from the G7 group of nations, which comprises of Canada, France, Germany, Italy, Japan, the UK, and the US.

Key Financial Highlights (FY 2018, in US$ thousand)

Driven by increased royalties resulting from the exclusive licensing agreement and large orders of covert materials by G7 customer, revenue for the year was $12,494k (2017: $12,170k). Adjusted EBITDA for the year surged to $5,045k as compared to the prior year of $4,349k, representing a rise of 16%, while adjusted profit before tax increased by 19% to $4,782k. Net income was up by over 24% at $4,055k (2017: $3,280k), while adjusted earnings per share were up by 11% to 9.8 cents (2017: 8.8 cents). The group declared an annual dividend of $0.07 per share, up by 17%. Cash at the period end was $12,662k, helped by cash from operations of $4,740k, while the balance sheet remained debt free.

Share Price Commentary

Daily Chart as at May-31-19, before the market closed (Source: Thomson Reuters)

 On 31st May 2019, at the time of writing (before the market closed, GMT 1:55 pm), SPSY shares were trading at GBX 128.98, up by 1.16 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 139.80/GBX 91.00. The company’s stock beta was 0.67, reflecting less volatility as compared to the benchmark index. Total outstanding market capitalisation was around £58.38 million, with a dividend yield of 4.16 per cent.

Conclusion

The decent growth from the company's covert materials business has been complemented with strong sales of high margin brand authentication materials, with the expansion of opportunities of its smartphone authentication solutions for products, tax stamps and banknotes. Within the next two years, the company expects to execute a license and supply agreement with a significant G20 central bank, which would substantially increase its revenue from just supplying the security features alone and diversify its revenue base by giving entry to a vast market.

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