At the current market capitalisation (~A$5.1m as of 11th March 2020), we think there is evidence that suggests an investment in Spectur has an asymmetric risk-reward profile. In terms of downside risk reduction, the company recently produced a maiden cash flow positive quarter (Q2 FY2020), with much of the anticipated spending looking ahead being discretionary (e.g., adding sales people which could in turn continue to grow the top line). Furthermore, the company has a cash balance of ~A$2m as of the 31st December 2019. Both of these things in combination mean that Spectur is less likely to be forced into a dilutive capital raising in the near-term.
On the upside, Spectur are looking to continue executing in the security market vertical by rolling out a sales strategy coordinated by the new MD Gerard Dyson, an ex-Regional Managing Director of the consulting arm of Worley Limited (ASX:WOR, ~A$5bn market capitalisation). The immediate focus of Spectur appears to be in the Australia & New Zealand markets, however the ability to expand Spectur's security solution into larger markets such as the U.S. remains a longer-term possibility. The launch of STA6 could also see Spectur enter into new market verticals. Spectur have indicated they are already in ongoing discussions with various parties that are in these potential future market verticals.
We think the data points mentioned above is evidence that suggests an investment in Spectur has an asymmetric risk-reward profile. Nonetheless, small-cap equity investing entails significant risk with the possibility for partial or complete loss of invested capital. A key risk for Spectur includes but is not limited to their need to maintain and grow revenues in order to reach a sustainable cash-flow positive position. As always, investors should conduct their own due diligence, without any reliance on our views, before investing, or refraining from investing, in Spectur.
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