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Starcom – 2018 revenue to comfortably exceed market expectations?, why the discounted placing?

By Steve Moore | Wednesday 7 November 2018

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.

Starcom (STAR), “which specialises in the development of wireless solutions for the remote tracking, monitoring and protection of a variety of assets, is pleased to announce that an agreement has been signed with a local distributor in North Africa” and “to ensure that this and other orders can be delivered as planned both for this year and early 2019, the company has conditionally raised £400,000 before expenses through a placing… at a price of 2p”. Hmmm…

It is added;
“The total value of the initial order under the agreement is approximately US$1.1 million. Delivery is expected to be made before the end of 2018, with the company receiving payment for the majority of the order value immediately prior to delivery. The agreement also provides for the supply of further equipment with a potential value of up to US$2.5 million on similar terms during 2019, but no firm order has yet been received for these… Assuming that this initial order is satisfactorily delivered by the year end and that other ongoing orders are all completed as planned, it is anticipated that revenues for 2018 will comfortably exceed the current market expectation of US$5.9 million (2017: US$5.4 million) and that EBITDA will be in line with current market expectations, namely in the region of US$485,000 (2017: loss of US$193,000).”

Hmmm – on revenue comfortably exceeding expectations, why will EBITDA only be in line? And that 2017 EBITDA loss of $0.193 million led to an operating loss of $0.889 million and a net cash outflow before new financing of $1.425 million. For this half-year stage, an EBITDA loss of $0.040 million was emphasised, though the operating loss was $0.510 million and there was a net cash outflow before new financing of $0.519 million.

The half-year balance sheet showed $4.1 million of current assets against $3.0 million of current liabilities (and $0.2 million of non-current liabilities). However, of the assets $2.3 million were “inventories” and $1.6 million receivables - and remember the even stated full-year EBITDA is “assuming that this initial order is satisfactorily delivered by the year end and that other ongoing orders are all completed as planned”.

The placing money needed to keep the lights on currently? – I suppose that is a necessity “to ensure that this and other orders can be delivered as planned”! And if doing so from a now strengthened position, why a more than 16% placing discount to even the prior closing share price? I now look forward to seeing the full-year result and the cash impact of it, whilst currently continuing to avoid – and also noting this is currently caught up in The Northland meltdown.

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