SRT Marine Systems PLC (LSE:SRT) saw its shares leap 14.47% higher to 43.50p on Thursday morning after the company released a trading update and announced a “milestone” systems contract.
The global provider of maritime domain awareness systems and technologies for security, safety and environmental protection said it signed a formal letter of intent (LOI) for a new Coast Guard project worth £145mln.
The project is for the delivery of a turn-key maritime surveillance system that will enable enhanced maritime safety, security and protection of large areas of environmentally sensitive marine areas, it said.
The customer is financing the project by way of a loan organised and supported by the UK government overseas UKEF agency and the LOI states that the project will proceed upon completion of the loan arrangement process, SRT Marine noted.
It said the discussions are at an advanced stage and expected to conclude within the next few months.
In a statement, SRT Marine Systems CEO Simon Tucker described the LOI as “a major milestone” for the company.
“Not only because it is a significant project in itself, but because it adds another Coast Guard customer who has an active long-term strategy to move to an intelligence lead operational model and therefore have an active plan to build up their independent maritime surveillance and intelligence capabilities; and therefore future follow-on contracts,” he explained.
SRT said the majority of the project, once underway, is expected to be delivered within two years and should generate “significant” revenues in the coming financial year alongside the company's existing system projects.
Pipeline of project opportunities
Turning to trading, SRT forecast revenues for the year ending 31 March 2023 of around £30mln, a 265% increase on the previous year, an EBITDA profit of £2.5mln and a pre-tax loss of £1mln.
Revenues from the systems business are expected to rise to £18mln from £0.6mln, with the transceivers business is set to report a rise to £12mln from £7.6mln.
SRT noted that these results are below market expectations due to delays in material systems business project milestones.
The company said it continues to grow a pipeline of prospective new future project opportunities with existing and new customers, with identified specific projects where it is holding ongoing discussions having an estimated aggregate value of £1.4bn.
Of these, the company is focused on a “validated subset” worth around £535mln where discussions with the customer and the project are “the most mature”.
This validated sales pipeline (VSP) contains £260mln of new follow-on projects from existing customers who are now looking to move on with the next phase of their long-term maritime surveillance strategies and £275mln of new projects from new customers - including the £145mln contract announced today.
SRT also highlighted two other potential projects with “significantly improved timing confidence”. The first is with another prospective new Coast Guard customer who wishes to build up a significant national scale system over the next 10 years in a series of incremental annual projects with an indicated annual project budget in the region of £50mln, starting from 2024.
The second potential project is with an existing customer who has secured funding of up to £150mln to undertake a significant expansion of their existing SRT supplied system, also starting from 2024.
“Notwithstanding the deferral of some revenue to our next financial year, the prospects look extremely promising for both our business divisions. There will of course be significant challenges to manage scaling, however we have made investments in product and people and learnt many lessons and so SRT is in a very favourable position," concluded CEO Tucker.