Petards – Update

Background

I’ve previously covered Petards, but I’ll give a full introduction here.

Petards describe themselves as a “developer of advanced security and surveillance systems”. Their three product areas are Rail (CCTV and other sensors), Traffic (ANPR systems) and Defence. They first came to my attention at Mello Chiswick 2018 where the presentation by Paul Negus (Group Business Development Director) went down particularly well with attendees.

There is some synergy between the Rail and ANPR units, in that they both involve cameras, but virtually zero with the defense business. The main reason for keeping these business together seems to be to share listing overheads and to even out revenues from the replacement cycle driven rail business with the more stable ANPR and defense businesses.

There had been high hopes for the rail unit with several likely large orders due for new trains and refurbishments that go with franchise renewals. Furthermore, adoption of cameras on trains and other equipment such as selective door opening are becoming common in the UK but are in their infancy in Europe and many other parts of the world. Since their immediate customers are mostly global train builders they have an opportunity to also become the dominant supplier of this equipment in Europe and elsewhere as adoption increases.

Unfortunately they have been affected by delays, problems and general chaos around franchise renewals. The business increasingly looked subscale and more likely to prosper as part of a larger group. The defense business has also suffered from some delays in orders.

Recent Updates

In February they guided a loss for FY 2019 and it started to look like they could run out of cash.

With the onset of coronavirus all UK rail operators were effectively being nationalised creating considerable uncertainty over future work. In the short term one of their train building customers suspended work. As time has gone on the future direction for UK rail has become increasing unclear.

At the March lows they had fallen from 2018/2019 levels of around 20-25p to 4p.

However, there have been some recent signs of life.

On 7th May 2020 they announced a bolt-on acquisiton on the ANPR side, an area that has been performing well over the last year.

At first sight it was difficult to see how they could afford the £1m consideration, but it turns out that the initial cost is just £79,000 with almost all of the rest is dependent on sales. They sold 525 last year and the maximum consideration is only payable if 5000 are sold over the next seven.

Petards have been one of the companies distributors since April 2019 and this kind of vertical integration purchase can bring additional customers and sales opportunities as well as benefiting from a larger sales / support team and cutting out some duplicated costs. However it also means Petards is in competition with some of the other distributors which may lead them to look elsewhere.

This is what they’ve “bought”:

The NASBox solution creates a fully compliant and cost effective roadside ANPR system when interfaced with commercial off-the-shelf cameras, providing functionality such as wireless and local communications for data transfer, licence plate syntax checking, camera overview cropping (to meet UK Police National ANPR standards) and power over ethernet (POE) support.

Petards have been criticised for sticking with analogue technology for too long in their core camera market and perhaps this is a move towards digital. However I can help thinking that there is an ever reducing value in providing storage and processing capacity at the roadside as opposed to streaming data (e.g. over 5G) to be processed at a central location.

Service Support Agreement

Then on the 12th May they reported on a service support agreement on the rail side.

They had previously admitting missing a trick by limiting themselves to lumpy equipment sales rather than seeking recurring revenue and this is as they say “a strategic milestone”, however no financial information was provided.

Outlook and Conclusion

The outlook is very uncertain for the rail sector right now. It is not clear when or if we will return to the daily peak communing numbers that necessitate some of the technologies that Petards have developed. While you could argue that things like their systems for monitoring seat occupancy are all the more relevant in the current environment, social distancing is likely to be temporary but increased home working may be longer lived.

The ANPR and defence businesses continue to plod along and are likely to generate profits for many years to come.

There is still a possibility the rail unit could turn around and each of their three business would have some value to a larger business. Well worth keeping an eye on.

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