Today's re-released half year results from maritime identification and tracking technologies kit supplier Software Radio Technology (SRT:AIM) (SRT) read pretty well and come in line with a trading update last month (3 Oct). Confirming revenues for the six months to September up 70%, to £5.4 million, looks great on paper, as does its pre-tax profit of £517,122, versus a £437,634 loss a year ago.

The £32 million makes some interesting automated identification systems (AIS) for which there is clearly a need. In this global economy huge container ships are the most effective way to transport non-perishable goods around the world and shipping lanes are incredibly busy. Add in passenger transport vessels and the larger leisure boats, demand is going up and up, mandated by international regulation.

Yet SRT still faces the same problems it always has. Orders tend to be big and chunky and it's almost impossible to know when they will actually arrive (see financial performance graphic). This makes forecasting for the company a challenge, with revenues and profits enormously volatile, and makes profit and revenue warnings, both good and bad, par for the course for investors.

(Click on graphic to enlarge)


(Source, Morningstar)

This is illustrated rather well by contracts during the first half, of which only April's framework order – potentially worth up to $6.75 million – the sole deal deemed important enough to announce to the market.

Cash flow is another challenge, with resources needed up front to manufacture and supply AIS units, which explains the period's £1 million working capital outflow. Slap on an extra £1 million of capitalised R&D, partially offset by a £0.4 million tax credit, means a headline £0.9 million of cash from operations actually works out as a £0.1 million over all outflow.

Analysts at Megabuyte flag net cash at the end of September of £1.6 million, plus another £5 million worth of kit available to sell on the balance sheet.

Anne Crow, analyst at Edison Investment Research, says the results 'show an increasingly de-risked and mature business,' but I'm not so sure. Yes, the product portfolio is broader, with AtoN (Aids to Navigation), first deliveries of the GeoVS 3D visualisation software in the supply chain, plus the first agreements to supply ABSEA (Advanced Class B Satellite Enabled AIS) technology expected later this year.

In theory, this lays the foundations for recurring revenues down the line, and important step if SRT is to ever break out of its lumpy contracts nature. But investors would do well to see how the second half pans out. The company says today that it has a 'significant pipeline of future opportunities,' and that it looks forward to a 'busy second half and beyond.' But SRT has a history of getting excited by the business's potential, yet its optimism hasn’t always been matched by performance.

Issue Date: 17 Nov 2014