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SMN - STRUCTURAL MONITORING SYSTEMS PLC


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SHARESCENE TV: Sharemarket Video Updates 6 Times a Day + Regular Broker Interviews + Educational Video Tutorials. Check out this site's very popular new feature.

Click here to Visit ShareScene TV

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Recent ShareScene.com Radio Broadcast (09/03/2007 14:30:00):

SMN - Boeing to Include Vacuum Technology in Aircraft - Mr Mark Vellacott, MD and CEO

 

N.B. ShareScene.com Radio can normally be accessed by the 'RADIO' link, top of every page.

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ShareScene.com Radio delivers investor presentations from ASX listed companies. Keep up to date with the latest corporate dealings of the shares you follow. Hear news direct from the source. Listen to directors and investor relations mangers discuss their company, give investor updates and brief on current results. ShareScene.com Radio keeps you informed about company announcements and events, and provides you daily market wraps and industry discussions.

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Mark Vellacott has been in Melb. for the airshow and a couple of meetings with brokers.

They have had a booth at the airshow (courtesy of the government).

He is off to Sydney this pm for a further 8 meetings with brokers and investors (one of whom owns 25% of the options)

The option to acquire the new technology (refer announcement of earlier this week) is very interesting. The technology is very advanced.

I think that we can expect some form of option underwriting deal to arise from his meetings

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SHARESCENE TV: Sharemarket Video Updates 6 Times a Day + Regular Broker Interviews + Educational Video Tutorials. Check out this site's very popular new feature.

Click here to Visit ShareScene TV

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http://www.brr.com.au/site/images/partners/sharescene-logo.jpg

Recent ShareScene.com Radio Broadcast (21/03/2007 11:30:00):

SMN - Revolutionary New Aerospace Strain Measurement Technology - Mr Mark Vellacott, MD and CEO

 

N.B. ShareScene.com Radio can normally be accessed by the 'RADIO' link, top of every page.

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ShareScene.com Radio delivers investor presentations from ASX listed companies. Keep up to date with the latest corporate dealings of the shares you follow. Hear news direct from the source. Listen to directors and investor relations mangers discuss their company, give investor updates and brief on current results. ShareScene.com Radio keeps you informed about company announcements and events, and provides you daily market wraps and industry discussions.

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Extracts from the Ireland report

 

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦..Recent results reflect the costs of supporting these intensive evaluation programmes, but as CVM is increasingly adopted, revenues from the aerospace sector are expected to increase, reaching an estimated AUS$98m by 2016. The company is expected to realise its first small operating profit next year and to be increasingly profitable thereafter, generating an estimated AUS$67.9m EBIT in 2016. These estimates exclude any contribution from other sectors where materials are subject to stress and fatigue and may suffer catastrophic failure. Assuming that SMS is successful in winning contracts to supply CVM technology, the level of profits which it is expected to generate would justify a valuation several times higher than the current market capitalisation. With the caveat that it is still too early to determine whether contracts will be secured in the volumes required, we initiate research coverage with a recommendation of Speculative BUY.

 

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ÃƒÆ’Æâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦.With regard to the civilian aircraft retrofit market, the first sales are likely to be to operators of older generation Boeing 737s which is a very popular but aging aircraft requiring an increasing number of mandatory inspections. There are around 8,000 commercial aircraft flying at present, of which more than 40% are older than 15 years. SMS assumes that the addressable market for the retrofit application of CVM is 50% of the 3,200 or more aircraft over 15 years old. Indicative pricing discussions with airline operators suggest that CVM technology is worth 20% to aircraft operators of the potential US$250k savings in labour and materials costs, giving a value for the CVM market for aging commercial aircraft of over US$80m per year.

With regard to the civilian new build market, SMS anticipate that aircraft manufacturers will use CVM as a way of protecting pricing in what is a very competitive market. It expects to generate revenues through the sale or licensing of the CVM system, which will be a percentage of the value manufacturers generate. Assuming that Airbus build-rates are in excess of one aircraft per day, SMS estimate long-term annual revenues from this source of over US$30-40m.

The next stage in the commercialisation of the technology is selling it to airline operators. SMS has already established links and confirmed pricing with several of these, some of which participated in the FAA/Boeing qualification programme. We do not expect SMS to receive orders from fleet operators until H108. Given that each fleet will be equipped with sensors over a period of several years as the time for each aircraftÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s structural inspection arrives, the revenue from each contract will be realised over a period of several years for larger fleets, so it is important that SMS secure contracts with several airlines in parallel to achieve the level of retrofit sales shown in our forecasts.

There is no equivalent to FAA/Boeing approval in the military sector, where each national air-force takes its own decisions on test and inspections regimes, though clearly a successful outcome of a qualification programme by one airforce will be regarded favourably by others. Our model assumes that the various qualification programmes which have been proving that the technology works will result in orders towards the end of calendar 2007. The sales team in the UK has recently been strengthened with the objective of achieving this.

Losses were distorted in FY05 by the BoardÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s decision to write-off the goodwill created when the Group restructured in June 2004 and the value associated with technology licences and patents. This move will make it easier for the Board to issue dividends when the Group begins to generate profits. We have treated this write-off as an exceptional to give a better view of the underlying level of losses.

 

At its current stage of development, SMSÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s working capital and capex requirements are modest. Cash flow is dominated by the balance between operating losses and funding in the form of grants and the issue of shares.

 

Prospects

SMS stands at a key transitional point in its history. The recent announcement that CVM has now been approved by Boeing as a retrofit structural integrity inspection method for use on Boeing civil aircraft enables SMS to press forward and complete sales contracts with operators of Boeing aircraft. Our estimates show revenues from this source growing from FY08 onwards. Revenues from the sale of CVM for new aircraft however do not commence until FY09.

Our estimates show SMS making its first small operating profit next year, rising to AUS$4.4m in FY09 and reaching $67.9m in 2016. We assume that the cash raised during the recent Placing will be sufficient to fund SMS as CVM is introduced to the worldÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s fleet operators, so that the company with be cash positive throughout the forecast period, with increasing amounts of interest payable each year. We also assume that there are sufficient tax losses to bring forward to delay paying tax until FY10. On this basis, EPS is expected to increase to 21.0 cents by 2016.

 

Assuming that SMS is able to ramp up revenues as indicated in the next couple of years, there appears to be sufficient head-room for SMS to grow without recourse to additional funding, which could potentially be earnings dilutive.

 

Valuation

For the purposes of valuation, we have adopted a DCF based approach as this takes into account the long-term future earnings potential.

This approach gives a range of valuations between 37 cents and 113 cents per share depending on the discount for risk and terminal growth rate applied. Clearly this valuation range is only valid if SMS is successful in developing the aerospace market as indicated in our estimates. If sales growth is less rapid than shown, for examples with sales reaching only AUS$56.0m by FY16, generating free cash-flow of AUS$23.9m, CAGR of sales from 2008 to 2016 would fall from 35% to 29%, and our target share price (on an equity risk premium of 3.0% and WACC of 12.0%) would fall to 46 cents.

Potential investors also need to note the potentially dilutive impact of 60.0m share options which are exercisable at 20 cents by the end of April 2007. Were all of these options to be exercised, our target share price range would change slightly, giving a range of valuations from 28 cents to 106 cents.

In addition, if sales do not develop as rapidly as estimated in the first two years, SMS will need to seek additional funding, which will be earnings dilutive. The difference between the current market capitalisation and future market capitalisations is of a magnitude to make this a very interesting investment proposition. However, as SMS has yet to demonstrate that it is able to win commercial contracts to equip civilian and military aircraft fleets, rather than generating revenues from pilot projects as it has done until now. With this caveat in mind, we initiate research coverage with a recommendation of Speculative BUY.

 

 

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F.C,

That paid report reflects my thinking exactly about SMN.

Especially this sentence in the last paragraph,

 

yet to demonstrate that it is able to win commercial contracts to equip civilian and military aircraft fleets,

 

This is why i dont post much on these sort of R & D companies.

Timing is so difficult to get right. That report actually leads me to think the SMN s.p. will

stay at 20 cents for the next 12 months.

The research & announcements i have read from SMN gave me the impression ,

that during the last 2 years while awaiting Boeing certification approval , SMN

was actively seeking contracts in anticipation of CVM product approval.

So i was hoping contracts to be signed quite soon to get the ball rolling.

This might not be the case though. Also in one of the radio interviews , our CEO said

he was being conservative in his revenue estimates, so maybe there could be more upside

than we are anticipating.

 

Its purely a guessing game at the moment for us mug punters.

........................

 

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QUOTE (datum @ Tuesday 03/04/07 07:16pm)

Mark Vellacott is definitely looking for more upside than presented in the revenue figures. I certainly hope that you are totally wrong about the share price over the next 12 months. I am looking for some announcements over that period.

It was very interesting to watch the strange trading that was going on today. At one stage, there was a buyer for several hundred thousand options at 1c, who sat there patiently waiting for them when he could have satisfied his demand by buying the same number of shares which were available at 21c. Given that there is only a couple of weeks left for trading in the options I am at a total loss why anyone would buy in that manner unless they have no intention of exercising the options that they were trying to acquire. So why buy them if they have no intention of exercising....I can only conclude that the buyer is expecting some very positive news from the company before the options cease trading on the 20th of this month. We will just have to wait to see if the buyer was well informed!

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The following is an extract from the companyÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s newsletter. The expected sales are going to be phenomenal

 

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦..Following the successful conclusion of a two year program of extensive evaluation by the United States Federal Aviation AuthorityÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s (FAA) Airworthiness Assurance Center and durability testing on commercial aircraft operated by US airlines, The Boeing Company agreed to include the CompanyÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s Comparative Vacuum Monitoring (CVM) structural health monitoring technology into the Boeing Common Methods NDT (non-destructive testing) manual.

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦..It is the first time that an aircraft manufacturer has agreed that an in-situ sensor can be used as alternative means for traditional maintenance and manual inspection techniques and is a major breakthrough for SMS. Following this major development the Company has now commenced a major marketing program of CVM technology to Boeing aircraft operators throughout the world.

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦..In addition SMS will be attending a major international conference on managing aging aircraft to be held in California on 16th to 19th April.ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ÃƒÆ’Æâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦During AirbusÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s visit to Perth and a subsequent meeting in Germany, discussions were advanced regarding the inclusion CVM into the design of the next new Airbus aircraft.

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦..SMSÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s Australian and UK based military aircraft qualification activities are progressing on track and are due to be completed by mid 2007. The culmination of activities in Australia will be an audit by Director General Technical Airworthiness (DGTA) of the results of the laboratory based performance testing by DSTO in Melbourne, currently at its final stage, and also the engineering and manufacturing quality management systems that will enable SMS to provide qualified CVM applications to military customers.

In the UK the trial activities being funded by the Ministry of Defence are also well advanced it has been agreed that the results of the DGTA audit will be accepted by the RAF and Royal Navy in the UK. A decision by the RAF and BAE SYSTEMS regarding the acceptance of the use of CVM on their Nimrod aircraft is expected soon.

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦..In summary SMS is well positioned for growth in sales in the civil and military aerospace and automotive sectors during second half of 2007.

 

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