Starcom Systems Financial Analysis

None of the information below should be viewed as financial advice.

Data:

Financial information prior to the FY 2014 results was not included due to a move from accrual accounting to cash accounting and some figures in this report have been rounded for ease of use.

Starcom Report in USD	Revenue/Million USD	Recurring SAS Revenues/Million USD	Operating Loss/Million USD	Operating Loss As A % of Revenue	Cash Used in Operations/Million USD	Cost of Sales/Million USD
Yr End December 2014	5	1.3	2.9	58.00	0.831	2.49
Six months to June 2015	2.64	0.793	0.691	26.17	0.261	1.48
Yr End December 2015	5.1	1.6*	1.6	31.37	0.4	1.9**
Six months to June 2016	2.5	0.845	0.613	24.52	0.2	1.55
Yr End December 2016	-	-	-	-	-	-

*1.18m Revenues after cost of sales and administration expenses.

** Does not include a 1.1m decrease in inventories.

Analysis:

While the data collected above is useful for achieving a comparative understanding of Starcom’s historical performance year on year, it’s significantly more useful to analyse this data in acknowledgment of the company’s more recent achievements. 

The below quotes are taken mainly from the 2015 FY results:

• “we remain cautiously confident that second half revenues should comfortably exceed the first half and therefore that annual revenues will exceed last year’s"
• “The Company is hopeful that it will return to profitability during the year ending 31 December 2016 by converting its strengthening pipeline into growing sales across the product range.”
• “the recurring income flowing from the Company's SAS monthly fees is also expected to grow, and should reach nearly a third of the total revenues. This is a stable and high margin source of income for the Company that is gradually becoming the foundation for covering most of the overheads of the business.”
• Raised £150,000 in late November in response to “investor demand” and £300,000 in mid October.
• Collaboration deal agreed with SATO for North American market.
• New contract signed with Pinnacle for Kenyan market.
• New product launches for: Helios Hybrid, Watchlock Pro and Kylos Air.

Cash Position:

The use of only £200,000 cash in the six month period to June 2016 is a clear indication that major savings initiatives have taken place in the company, which will ultimately assist in making the company profitable in the near term.

Moreover, having raised a total of £450,000 (of which £150,000 was to meet investor demand) in October and November, it suggests that the likelihood of another raise in the short term is very low, which will support investor morale at these levels. Furthermore, the time gap between now and the placing of the shares suggests that any flippers of the placing are likely out of the stock now.

Revenues:

Recurring SAS revenues amounted to $1.6m in in the FY of 2015 and with these representing a very high margin product to the company, their growth in tandem with regular sales places upwards pressure on the overall product margins of the company (38% as of H1 2016).

In fact, the break down at the end of the 2015 FY report suggests that the SAS products had a profit margin of 73.8%, which is expected to only grow now that the system is fully in place and requiring less investment.

Revenue from sales moved up inline with expectations in FY 2015 ad with an evermore diversifying sales base to work from these are expected to both continue and expand at a faster rate as collaborations with SATO pay off. 

In addition to this, the publicly available data from Gurtam.com suggests that ~150 units have been sold in December via the Russian distributor for Starcom. Moreover, in July there were approximately 1,000 registered units online via Gurtam and this figure is now ~2150, illustrating the major push up we should hopefully see in SAS recurring revenues and pure sales revenues.

Operating Losses and Cost of Sales:

The operating loss year on year from 2014-15 was down 45%, in part due to a significantly reduced cost of sales, which fell 24%, but also due to major savings being made on general and administrative expenses, including a saving of $200,000 in management salaries.

Interestingly the operating loss as a percentage of revenues in FY 2014 was 58%, compared to 31.37% in FY 2015 and more recently 24.52% in H1 2016. This suggests that the move to profitability could come very soon, as it’s clear that losses are being absorbed at a faster rate as the company progresses.

Moreover, this fits in with the company’s expectation that “it will return to profitability during the year ending 31 December 2016”.

Summary:

• A more than 50% reduction of cash in operations  between FY 2014 and FY 2015 suggests that the BOD are making significant progress in reducing the company’s outgoings and that they stand a good chance of meeting their expectations of reaching profitability by the end of 2016.
• Rising high margin SAS revenues will feed through into the overall sales margin for Starcom, pulling their overall margin significantly higher as more units come online.
• Compared to FY 2014, FY 2015 saw a 45% drop in operating losses, suggesting that at the current rate of business growth, a move to profitability should occur soon (bar black swan events).

For a relative valuation compared to other companies in the same sector, I would direct people to work I’ve done previously on price to sales ratios:

https://twitter.com/ProAIMTrader/status/778126679898263552

Free UK Technical Analysis 04/03/2015

DISCLAIMER: I am not FCA authorised or authorised in any sense to give financial advice. Do not regard any of the following links, or information as investment or trading advice.


Today's Analyses:

https://drive.google.com/open?id=0B0wd9XTIWftmfmcyeURobmdUTDdmeS1UREtUV3N0cDBtVDQ3Q1NpeHhPWVJkQ3oyX1BMS0k&authuser=0

How to use these reports:

• http://themaskedstocktrader.blogspot.co.uk/2015/03/technical-analysis-instructions.html

• More information regarding this project can be found here:

http://themaskedstocktrader.blogspot.co.uk/2014/11/my-experience-with-quantitative-finance.html

Harry Potter - Understanding The Wizarding FOREX Markets

The world of Harry Potter has always fascinated me and as one of those children who grew up in the media era characterised by the resurgence of magical realism that Harry Potter and other such stories gave me, I feel privileged to think that this aspect of my life has given me a vibrant imagination.

Stepping over the fact that Harry Potter isn't real in the objective sense (I'm fully aware that it's magical realism), I've always felt that there is one primary issue in the Wizarding World of the Harry Potter franchise: their bizarre currency! 


I think that I have finally solved the inconsistencies within the currency however and thereby am able to disband the theories against J. K. Rowling's valuation of the currency against the Great British pound (GBP).

Wizarding Currency:

To give a brief overview to the system of Wizard money, the currency is split into three coin denominations: Galleons, Sickles and Knuts. There are 17 Sickles in 1 Galleon and 29 Knuts in 1 Sickle (and thus 493 Knuts in 1 Galleon). 

Now, according to J. K. Rowling, 1 Galleon is "About five Great British pounds, though the exchange rate varies!"

We know that there is a Foreign Currency Exchange (FOREX) within Gringotts (and thus the expected transfer of wealth between GBP and Wizarding currency), because of this statement and also because we know Hermione's parents have to exchange GBP there in the third book (presumable with which they will purchase school books).


The Issues as I see them:


I'm going to gloss over the assumption that one could logically make regarding the price of the raw commodities that the Wizarding currency is based off (gold, silver and bronze) and take it as red that this screaming error of value against the GBP is just that - an error. With gold currently priced at £24.37/g it seems highly illogical that a Galleon (if we assume it's about the size of a 50p coin - 8 grams) would be worth £194.96. I thereby conclude that the coins are simply coloured as gold, silver, or bronze - they can't logically be made of the solid metals anyway as a result of Gamp's first law of elemental transfiguration (if you can't summon money out of the air, then by extension you logically can't summon its main component).

Excluding the previous point as nonsensical, I the number one inherent flaw with their system of currency as stated by many observers of the series, is that in terms of purchasing parity verses the GBP, their currency is simply in another world (excuse the pun) to that of the Muggle world, even though there's a natural osmosis of individuals between the two worlds on a daily basis, which one would assume would cause a reasonable level of cross currency exchange and relative price comparisons between the two currencies.


To illustrate my point practically, if we assume that J. K. Rowling's rate of 1 Galleon being equal to about 5 GPB is true, then you would logically expect one Galleon to be able to purchase around five loaves of bread in the Wizardng World or maybe two cups of coffee, or one and a half pints of beer in a pub (where I live at least).

However, as fans of the franchise will know, A Beginners Guide to Transfiguration only costs 1 Galleon - no school book I ever purchased cost only £5! Moreover, Harry, Ron and Hermione pay only six Sickles for their three pints of butter beer in the fifth book in the series (about 60p a pint - or about 20% of the cost of a pint where I live) and Mrs Weasley in the second book is reported to only have 1 galleon in her Gringotts account (poor the Weasleys may be, but this seems a little too close to the Wisarding breadline)!


It may be that there is a logical reason for these inconsistencies; perhaps we are meant to assume that Gamp's Five Exceptions to Elemental Transfiguration discounts butter beer (I understand that food and Wizarding currency are two of the exceptions), or parchment. 

The logical argument in favour of J. K. Rowlings valuation would be to assume that there exists a natural inconsistency between the inflation rates of the two currencies, but I feel that this is an unrealistic and overly simplified explanation of the inconsistencies between the purchasing parity of GBP against Wizarding Currency.

Instead, I would put forward the idea that the existence of magic causes an inherent level of deflation within sub-sectors of the Wizarding economy (publishing, drinks, etc) in comparison to the Muggle economy, which is in turn the consequence for the wild variance and inconsistencies between Wizarding currency and GBP. 

Put against, the expected and reasonably consistent positive real rate of inflation in the Muggle world, it is thereby no surprise that there is such a disparity in certain aspects of Wizarding currency in its valuation against the GBP.


Or to quote Snape in How It Should Have Ended's video on Harry Potter: "Magic, duh!".


All the best,

The Masked Stock Trader

Stox App (beta) - A Review.

I'm normally not particularly interested in apps, but Stox caught my eye for three reasons:


1. It's aimed at teaching basic investing knowledge - a subject I'm particularly passionate about.

2. It looks pretty unique as far as educational apps on the subject go.

3. It has a beautiful Graphical User Interface (GUI) - something that men in their late teens and early twenties like myself really need to bother using any app.


Now, being in its beta stage, the app is obviously not finished, but of what I was able to play around with I was incredibly impressed!


I ran Stox on my Samsung S2 and I found it to run very smoothly and the "swipe" and "tap" UI effects were a great way to separate the app out into appropriate information sub-sections, which took you through the very basic ideas surrounding the stock market mechanisms. I particularly liked the way in which the app tested you on the completion of each section and then took you back to the relevant information if you made a mistake.


As a professional trader, I knew there was a danger that I would fall into the "this has too little information camp" regarding the app, so I tried to review this app as a novice and on doing so I actually felt that people new to the trading and investing world would really appreciate and benefit from the way in which the app uses very basic examples to relay information that has the potential to become very complicated when you begin to get technical.


I ought to warn readers now that I am both English and went to a grammar school and consequently may have a bias regarding my single criticism of the app, which was that it felt a little slow to give information - I'm a bit impatient and when I ask a question immediately want an answer. I just felt that the app was holding information just out of reach of the speed that I wanted to take it in at as a user, but I feel that this issue probably says more about me than the app itself! This could be improved by just reducing the time it takes for the "tap to continue" icon to appear, but I think that in reality most people aren't likely to see this as a real issue, especially if the users are actually members of the target audience (novice investors).


Overall, I felt that Stox has the potential when it comes fully live to continue to be both a highly informative and fun app for those who are taking their first steps into the world of investing and I look forward to testing the app further as it comes out of its beta stage.


For those interested the beta version of the app can be downloaded free on the Play Store for android devices:


https://play.google.com/store/apps/details?id=io.stox.app


All the best,

The Masked AIM Trader.