Spectra Systems (SPSY) – Washing Cash

Spectra Systems (SPSY) – Washing Cash

Spectra Systems Corporation is an American company that specialises in washing banknotes (latest share price 118p, market cap £53 million).

It appears to have failed to achieve anything worthwhile for its first six years until January 2017 when it significantly exceeded expectations. It turned this into a habit and even managed to put out an RNS that 2018 profit would significantly exceed expectations twice! The stock responded in earnest and rose 200% in 2017.

2018 was relatively sedate. The company was still performing, but the stock needed to consolidate. The share price has calmed down – let’s look at the chart.

Spectra started 2018 at around 80p and finished at 105p. That’s still a 31% gain – many investors would be very happy with that return, but it does not compare to the previous year. I think 2019 could bring a return to its previous strength.

Yesterday, Spectra announced its first order for TruBrand. TruBrand is pretty impressive technology, and has potentially global use. Let me explain: anyone using TruBrand will be able to allow their customers to verify product authenticity with a smartphone, which detects a signature.

The market for this technology includes tobacco, spirits, clothing, any taxable items, and any company that wishes to protect its brand image and authenticity from fakes and knock-offs.

TruBrand uses a physical signature on the product, and the smartphone scans it and checks via the internet if the product is genuine.  It is already being used in the Keurig K-cup system, in which the K-cup market is over 10 billion units per year. The company is confident that this will become a stable source of revenue and profit, and why shouldn’t it? It solves a problem.

Interim Results

I was a bit surprised by the interim results. For all the talk of beating expectations, I was expecting monster growth. Instead, we got 11% revenue growth from a small base and profit before tax and amortisation of $3.8 million. If we assumed no growth and flat adjusted profits at $7.6 million, convert USD into GBP, £6 million, then for a company currently capitalised at £53 million that would imply an FY 2018 adjusted P/E ratio of 9.

Valuations have come down in recent weeks due to the December rout, but Spectra has weathered the storm. I don’t think the valuation is expensive for a growth stock, given that it had nearly £10 million of cash in the last results and PBTA was up 34%.


As mentioned on my Twitter page recently, I want to trade a lot more breakouts in 2019. This is because they work, and anyone who says you can’t beat the market will never make any money. Stocks that print higher highs often go on to make newer highs. Think about it – every successful stock in the market regularly made new highs. It had to, otherwise it wouldn’t have kept going up!

Spectra would break significant resistance around 125p and move into the blue ocean of all time highs. That means there are no trapped buyers, and everyone is now in profit with no-one above looking to unload. Notice that Spectra said “the first of two expected orders” in yesterday’s RNS – perhaps there might be another one on the way!


In my above calculation, I factored in zero growth. However, I’m not sure what to make of this from the company’s results.

“Revenue this year will be heavily biased towards the first half of 2018 with continued positive earnings anticipated throughout H2.”

Does this mean that most of the growth will come from H1 and that there will be no growth from H1 to H2? I read continued positive earnings as growth from H1 to H2 but that may not be the case. If so, then my conservative estimation of no growth may actually be an optimistic expectation. That’s not good! It’s worth mentioning that nobody knows who their clients are.

In short, I have no idea how to value this company, as I do not know what expectations are. Luckily for me, this is a trade based on price action and so I will not consider any such analysis in my trade. Personally, I think this business is not as good as it first appears, unless they can start ramping up the revenue. If they can, then (like all other AIM companies) the potential is large. They are profitable, and they are generating cash, but I’d consider it too unknown to take a material position in it.


At the time of publication, the author does not have a position in SPSY.



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