Plexus Holdings (LON:: POS) shares are up 50% this morning. POS shares are up on the increase in the size of a contract they have. It’s a £3 million increase in contract size, the Plexus market capitalisation is around the £3 million mark and that explains all, right? The new £3 million income in additional to current overheads and should flow direct through to the bottom line - after cost of sales of course. But that’s probably not the way to read this.
From the interim results: “Plexus Holdings plc, the AIM quoted oil and gas engineering services business and owner of the proprietary POS-GRIP® method of wellhead engineering, announces its interim results for the six months to 31 December 2022 ("H1 FY23"). Sales revenue £709k (2021: £734k)” and then there’s the big contract win: “Post period end, March 2023 - secured a £5m+ contract for the rental of proprietary POS-GRIP "HG®" wellhead equipment and sealing technology for a specialised subsea project application (the "Special Project") to be deployed over the next 12 months.” Which is great, of course, one contract brings in 6 and 7 times half year revenue, happy days!
That contract then gets upgraded and we’re all even happier, right? Except that’s not really the way to read this. At least we think there’s another and more important way to read it.
Plexus Holdings share price from Google Finance
From today’s announcement: “announce that the value of the major contract announced on the 6th March 2023, has increased from c.£5 million to c.£8 million.
Plexus is supplying its POS-GRIP "HG" wellhead equipment and sealing technology on a rental basis for a specialised project application including leak proof metal to metal "HG"® seals in a subsea environment. The full c.£8 million of sales revenue for this contract is anticipated to be recognised in the current financial year ending 30 June 2024.”
#Yes, super, so there’s another £3 million in revenue this fiscal year. But as we say that’s not what we think is the really value additive information here. Think back a bit. So, oil services form develops new technology that no one very much buys any of. Then they gain a real world user at scale. Well, as we say, happy days. But then someone using the technology actually in anger out in the real world ups their order. That’s a significant validation of the technology itself. It makes further sales to other customers vastly and hugely easier. And that, we think is the real value add here.
Having tried it out a major customer thinks it’s worth having more of. That’s a significant validation.
