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Starcom – shares soar on “Major Supply and Support Agreement”, but how ‘major’ is it?

By Steve Moore | Thursday 15 June 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Having been bearish on Starcom (STAR) – from with the shares at above 7p HERE and most recently HERE – I note the stock currently 50% higher today, at 2.25p, on the back of a “Major Supply and Support Agreement” announcement.

This is a three year deal for the ‘Tetis R’ container tracking system with Philippine software company, Shiptek Solutions, with the Tetis range to be offered as part of a new digital platform (‘X-Log’) which Shiptek has developed.

Shiptek has committed to purchase a minimum of 2,900 Tetis R units (an initial 100, 800 in 2018, 800 in 2019 and 1,200 in 2020) and also Software-as-a-Service online tracking. This sees the announcement noting “a total sales value of $1.2 million” and SaaS revenues over the three years of “approximately $250,000” (an average of $5 per month per unit).

However, I note the initial order is only $42,500 and Starcom’s most recent results showed a loss of more than $2 million on revenue of $5.1 million. They did also note “overall losses in 2017 should be significantly reduced” and “sufficient loan facilities are available to cover its cash flow requirements”, but then came last month's warning of order delays.

CEO Avi Hartmann considers the agreement “a major breakthrough for Tetis in terms of the volume potential as well as the endorsement effect” and that, with X-Log noted to have generated a high level of interest and “a major top-ten shipping company” having begun trials, “volumes for Tetis can dramatically exceed the minimum order”.

However, given its record, I previously concluded I’d want concrete evidence of material improvement before considering a more positive perspective on Starcom. Thus, at least until stated positivity is reflected meaningfully in the cash flow performance, I’ll continue to avoid.

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