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Symphony Environmental Technologies (LSE:SYM), an AIM-listed specialist in advanced plastics technologies including controlled life, anti-microbial, anti-counterfeiting and recycling, is a share tip from t1ps.com that has not covered me in glory thus far – as I noted in a September piece here on ADVFN. Although, at a current 4p share price, the stock trades a bit ahead of the 3.625p they were at when I penned that article, they fell back on a profit warning a couple of days ago though have since recovered on the back of some director share buying. Having managed a chat with the company’s Chief Executive, Michael Laurier, today the following reviews the recent developments…
You can read my September article here
The 5th December announcement revealed that a trading loss of approximately £1.1 million, up from 2011’s £0.5 million, was now expected with revenues, although as usual significantly higher that the first half (£2.12 million), to be “substantially lower” than the previous year (£8.5 million) and market expectations. This is principally due to a decline of approximately 30% in ‘d2w’ (controlled-life, allowing plastic to be bioassimilated in the open environment) additive sales as a result of delays in a number of large territories exacerbated by the company significantly tightening its working capital cycle in order to reduce debtor exposure and stock held in its distributor network.
However, the company added that initial orders from some of the delayed territories have now been received (along with positive indications of interest for future sales), seeing November revenues revert to an operating level similar to 2011 and making Symphony “confident of a stronger performance going forward”. The announcement noted that the company is “also in advanced negotiations with a global pharmaceutical company, which may lead to the granting of substantial distribution rights to the group for what is believed to be a unique plastic masterbatch. As a result of positive laboratory tests and ongoing field trials, we believe this masterbatch technology may add benefits to most industries where plastic is used, and especially the food industry. This technology is expected to be complementary to our existing d2p (contamination by harmful bacteria and fungi reducing) technologies”.
With the working capital position crackdown and a much reduced trade receivables position, Symphony emphasised it has sufficient cash-flow and trading facilities to enable substantial business growth and a continuation of R&D investment going forward – in the first half the company generated net cash from operations despite reporting a £0.655 million loss and ended the period with net current assets of £1.86 million, with there just £26,000 of non-current liabilities. With the present market cap at just £5.1 million, directors of the company yesterday spent nearly £15,000 in total buying shares in the market and taking total directors’ shareholdings to 18,105,742 shares (14.16% of the issued share capital). Although current year numbers are now to be well below prior expectations, I continue to believe the platform is in place here to deliver £1 million+ in annual profit next year – the company having 74 distributors around the world and products made with d2w plastic technology now in 96 countries – and the potential global pharma deal adds further potential.
However, although in legislation (for biodegradable plastic) and trials around the world taking longer than the company reasonably anticipated and it focussing on cash generation, there are sound explanations for recent disappointing profit performance, the market is likely to judge the company harshly until it demonstrates delivery against earnings expectations. Laurier informed me that detailed forecasts are currently being re-assessed – with visibility hindered by the company’s high operational gearing. Given the profit potential and balance sheet position here, I would certainly not be selling at current levels but awaiting demonstrated delivery against, what should be soon to be reset, financial expectations, for now my stance would be, at the very worst, hold.
For up to ten articles a day on shares, global warming ( lack of it), eurscepticism or life as a small state believer sees it, visit Tom’s blog at TomWinnifrith.com
