It’s advisable to take a long-term view when investing, but even more so when evaluating a largely projects-based business such as Newmark Security PLC (LON:NWT).
The leading supplier of physical and electronic security equipment has a number of blue-chip clients, including the second largest retailer in the world and the biggest retailer in the UK.
Many of its products are tailor-made, big ticket items that are sold into major construction and refurbishment projects, which are the sort of contracts that are subject to delays, usually as a result of an impromptu spot of belt-tightening by the customer or some movement of the goal posts by a government.
Sometimes, the goal posts are not moved by the government, but by the electorate, as in the case of the EU referendum vote.
The uncertainty in the run-up to the Brexit vote made customers leery of sanctioning big projects, and the outcome of the vote did little to change that view.
Combined with an anticipated decline in sales of time-delay cash handling equipment to the Post Office and the effects of the slow withdrawal from the high street of UK banks, the group has acknowledged it will not make a profit in the current financial year.
In the six months to the end of October, the group posted a loss from operations of £816,000, versus a profit in the corresponding period of 2015 of £765,000.
Half-year revenue fell to £8.37mln from £11.18mln the year before, as a result of a 39.4% decrease in the turnover of the Asset Protection division, from £7.6mln to £4.6mln.
The Electronic Division, meanwhile, saw revenue rise from £3.6mln last year to £3.8mln this time round.
The Asset Protection division is the one that has been hit by changes to the Post Office and banking sectors, and management has responded by changing focus towards the provision of counter-terrorism solutions, where the business is well positioned to drive sales and create new opportunities.
This strategy, the board believes, will offset any sector specific downturns as the counter-terror market spans multiple sectors.
“The group's expertise in ballistic resistant products will be a key advantage in responding to the rapidly increasing demand for physical security from corporates around the world,” Newmark said in its interim results.
As for the Electronic division, significant amounts of money have been ploughed into developing its Sateon Advance access control system as well as an Android-based terminal for workforce management (WFM) called GT-10.
Sateon's new advanced range will provide customers with a seamless access control solution. It combines hardware and software in one package, and helps deliver smart, low energy environments, Newmark said.
Customers using the company's JANUS-based access control product are being encouraged to migrate to the Sateon-based solution, an option that is likely to prove appealing to customers who baulk at the prospect of stumping up for new hardware for competing products from other companies.
Meanwhile, the new WFM terminals enable customers to expand their use of work force management beyond 'clocking in/clocking out' to incorporate features such as scheduling staff training and work assignments, holiday booking and – bad news for the work-shy this - biometric fingerprint readers that will stop an employee clocking in for an absent work-mate.
So, yes, the company is peddling the line one would expect – that of a brighter tomorrow thanks to hard decisions taken yesterday – but that is because that is the way the Newmark business works.
Without wishing to labour the point, broker Cantor Fitzgerald stresses that Newmark's revenues are “rarely recognised in a smooth straight line progression” and that peaks and troughs come with the territory for Newmark investors.
“However, the company has a proven track record of consistent growth in the medium term and has a conservative but progressive dividend policy,” the broker said.
The numbers back-up that assertion: in 2012/13, pre-tax profits clocked in at £436,000; in 2013/14, they rose to £906,000 and they rose again the following year to £2.25mln in 2014/15.
Last year, as we have seen, was a challenging one – profits eased to £1.2mln – but the dividend was held at 0.1p.
It is worth noting that the dividend has risen from nowt in fiscal 2012.
“Newmark has the financial strength to absorb the regular fluctuations in revenue and margin that it experiences,” Cantor believes.
The cash balance at the end of October was positive at £1.9mln. That was down sharply from £5.4mln, reflecting material investment over into new products in the Electronic division.
“This has resulted in two new products having been launched in the second half of the year: the SATEON Advance access control system and GT-10 Android based terminal for workforce management,” said chairman Maurice Dwek.
“Both products have been well received and several potentially high volume, early stage enquiries have been received,” he added.