Structural Monitoring Systems: Slow and Steady Wins The Race
Get More Commentary, Discussion & Market Information On -
It’s hard to classify a 500% return in 12 months as “slow and steady” but when compared to many other pump and dump, overnight sensations the performance of Structural Monitoring Systems (SMN) has been on cue and in keeping within our expectations.
We have pushed the merits of SMN on three previous occasions, highlighting its enormous potential with its metal fatigue sensors. I even went as far as to reveal it has been the one position I have ever held for the longest period of time in a proprietary trading book given the impressive management and structure of the company and the opportunity it presented.
I hope many of you have profited from the stock’s appreciation.
I won’t repeat the story of SMN to new readers, as a review of my previous columns will provide that. However I will admit right now, I have been disappointed in the length of time it has taken so far to iron out a contract for supplying Delta Airlines (their FAA flight program partner) with their monitoring systems and sensors. FAA approval was given in December 2015 and I would have thought a deal would have been made in the first 3-4 months. As we know this hasn’t surfaced yet. I think this is more of a reflection of my naivety in thinking that such long-term, ground breaking contracts can be drawn up in such a short period. A recent personal experience with lawyers over a mere placement in a Singapore stock for our prop book (something that should be relatively simple) has now taken 3 months………….
The fact the share price has held up near record highs in the absence of any contracts following FAA approval is a testament to the fact that SMN is the real deal. Any company that has appreciated 5 fold in 12 months and 10 fold in three years is always vulnerable to losing its “flavor of the month” status. It is actually extremely rare for a company to still be holding onto such returns without real substance. The past two years has been littered with market darlings that have been nothing but hot air for investors. Think 1Page (1PG) for example, as shown below. No matter how much hype a stock can receive, without a real long-lasting business behind it, it will always crumble. And investors need to be aware of the difference between the two. It’s not easy, I see so called “great fund managers” investing other people’s money with no repercussion, unable to tell the difference.
Now let’s look at the performance of SMN by comparison. The hype has not been as exuberant as with 1PG, but the gains have been more orderly and constructive. For example, the rally from November to January 2016 was a gain of $1.40. The next rally from that January low to the high in April 2016 was $1.40 once again – almost to the cent. Therefore, this next rally from $1.60 should hit near $3.00 if a similar gain is to be seen. Of course it could be substantially more on a Delta deal being announced. We will know more following this Tuesday’s company update that everybody can dial into. I implore you to dial in (details can be found on the recent company announcement) and really hear from the company what opportunities truly are open to its technology.
From 60c in September 2015 in one of my earliest columns about SMN I stated that it could be worth $5.00 and one of the highest dividend payers on the ASX. The company has no debt, minimal operational expenses, no need for cash and its sensors cost literally $20. It’s not expensive technology, just innovative, reliable and revolutionary. As a result, CEO Toby Chandler did state that they intend to pay the majority of profits in dividends. Given the high margin, highly cash generative business that the business model will produce once contracts are signed, I still firmly stand by my $5.00 target in the next 12 months.
So this was an update on my views on my favourite stock ahead of the conference call next Tuesday. It’s steadily delivering and the progress has been unlike many other high flyers where the hype evaporates and the share price gains do to. Sometimes slow and steady is best.
As the wisely character Lou Mannheim said in the iconic movie, Wall Street – “That’s how IBM and Hilton were built, good things sometimes take time”.
Greg is the Head of Proprietary Trading at Gleneagle Securities and has over 20 years of experience as proprietary trader and high level strategist for the major investment banks including Citigroup, Bankers Trust and Macquarie Bank. He has been involved across all asset classes including commodities, bonds, currencies and equities right across the globe.
After a 10-year career within the comforts of the large investment banks and research firms he branched out on his own to form his own proprietary trading firm successfully building the business into a multi-million dollar trading operation that turned over a billion dollars a year. This same team now runs the proprietary trading desk at Global Prime, risking their own money in line with the firm's and client's capital.
Greg has appeared on CNBC, Channel 9 - Business Sunday programme, a guest columnist for the Australian Financial Review, a regular author for Personal Investor, Wealth Creator and Shares magazine and is the former Treasurer of the Australian Technical Analysts Association.