One to watch.....?

Very little news around this morning, as is often the case on a Friday, but a contract win by a company called Newmark Security did catch my eye.

Newmark Security describes itself as a leading provider of electronic and physical security systems.

This morning they announced a $6m contract that had been secured for the delivery of Workforce Management Technology.  The contract is for a period of 10 years with guaranteed revenues of $6m over the first five years.

I have briefly had a look at Newmark Security in the past, but never been tempted to buy the shares. The company is valued at around £18.2m on a fully diluted basis with £4.2m cash on the balance sheet and a tangible net asset value of  £4.9m.

The company generated a very healthy cash flow from operations last year of around £4.6m, and has very little debt on the balance sheet. FCF was around £3.2m with makes the current valuation look very interesting on a multiple of 5.7 times.

In addition, EPS came in at 0.43p on a fully diluted basis putting the shares on a historic p/e ratio of just 8 times earnings. The company pays a dividend which was increased by a third from 0.075p to 0.1p giving a current yield of 2.7%.

All of these figures look very attractive, so what's the catch?

Well, in the final report they say the following:-

"Overall, we believe that the profits of the Group in the current year will be lower than that for the year ended 30 April 2015 whilst we build up new markets and products from which the benefits will be seen in the following year and beyond."

Unfortunately, I am unable to find any broker forecasts for 2016 and beyond, but as a medium to long term prospect, it's one I'll add to monitor and carefully watch progress.

Temporary dips in revenues and profits can produce excellent buying opportunities in small/micro caps since they often mask the longer term prospects. I like their confidence in raising the dividend pay-out and, as already mentioned, operating cash flows look very attractive indeed.