Synectics – this is a ‘clever technology business’ - its global marketplace offers so much potential, ahead of its 2024 Finals in two weeks, the shares now at 358p offer big upside

19.02.2025

On Tuesday 4th March, possibly one of the busiest days for SmallCaps reporting, one of my recent favourites, Synectics (LON:SNX) will be announcing its 2024 Final Results – and I am looking forward to hearing what the group has to say about its business going forward.

The Business

The Sheffield-based group is a leader in advanced security and surveillance systems that help protect people, property, communities, and assets around the world.

It also has operations in Berlin, Macau, Singapore and in Wheat Ridge, Colorado.

The company’s expertise is in providing solutions for specific markets where security and surveillance are critical to operations.

Such markets include gaming, transport, public space, oil and gas, 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.

Recent Contract Win

On Monday 27th January this year, the group followed up the award of several contracts late last year, with the announcement that it had been awarded a further contract, worth some $2.2m, for the professional services to deploy a Synergy upgrade and expansion at a major gaming resort in South-East Asia, one of the most successful and highest profile gaming resorts in the world.

Synectics will provide a comprehensive suite of professional services, including the project management and on-site commissioning required to upgrade the existing software and hardware infrastructure to enhance the customer's security capabilities to meet its evolving operational needs.

This is not for a new client, in fact it has been working with this customer since 2014, and the contract is further to the $13.2m contracts awarded, in aggregate, in FY 2024 (June and September).

It is a complex project, with the customer's system remaining in operation 24/7 throughout the upgrade, which is expected to be delivered predominantly in the current financial year.

Management Comment

CEO and CFO Amanda Larnder stated that:

"We are delighted to provide our professional services to such a prestigious and long-term customer in a market and territory in which we have significant experience.

This contract demonstrates the Customer's confidence in Synectics' end-to-end expertise required to deliver such an organisationally critical project and the commitment to our ongoing partnership."

Analyst View

At Shore Capital Markets, its analyst Rob Sanders has estimates out for the group’s year to end-November 2024 showing £57.0m (£49.1m) revenues, lifting its adjusted pre-tax profits to £6.1m (£4.8m), with earnings of 20.3p (14.2p) and paying a dividend of 4.5p (3.0p) per share.

For the current year he looks for £61.7m sales, £5.0m profits, 23.9p earnings and a dividend per share of 6.5p.

The year to end November 2026, he estimates, could show £67.0m revenues, £6.1m profits, with earnings leaping to 29.0p per share, easily covering a dividend of 8.0p.

In a recent note on the group, Sanders states that:

“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.

Indeed, the technology infrastructure in place provided by the Synergy command & control software platform gives the group the potential to deliver £10m of adj. EBIT at some point in the future, in our view.

Even though the share price has performed well over the last 12 months or so, we believe that the valuation metrics in the outer years, suggest there is scope for further significant share price upside.”

In My View

This is a cracking little business, with masses of potential business, especially outside of the UK.

Its global stretch is impressive, so too are its systems offering, which is why it is continuing to win more business – and once in situation it just rolls on as an income generator.

The shares have not moved too much since my first feature on the group way back at the start of this year, on Thursday 2nd January, then at 352p, since when they have been up to 370p and later suffered profit-taking in the technology rout taking them down to 311p, ahead of the recent steady climb back up to 366p at one point yesterday.

They are now 358p and look so appealing, I still anticipate a 50% rise in due course.

Perhaps the Finals being reported on 4th March will help the cause.