Home Money MIDAS SHARING TIPS: Tech Alliance in War on Counterfeit Bills and Stamps Should Keep Money Coming to Spectra Systems

MIDAS SHARING TIPS: Tech Alliance in War on Counterfeit Bills and Stamps Should Keep Money Coming to Spectra Systems

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High security: Cartor is one of the two companies worldwide that produce barcode stamps

It was bad enough to discover that Chinese counterfeiters have been flooding the UK with fake stamps, causing distress to thousands of people and businesses. There are now indications that fraudsters have been doing this for years, but their crimes have only come to light since barcode stamps became the norm.

The stamps are produced by Cartor, a 100-year-old high security company based in Wolverhampton. Cartor may have its roots in the Victorian era, but the company is one of only two companies in the world with the technological capability to deliver stamps with encrypted barcodes.

Now Cartor has been kidnapped by Spectrum systems, an Aim-listed company run by Nabil Lawandy, an astrophysics professor turned entrepreneur. Based in Rhode Island, US, Spectra is a cutting-edge company in its own right and the shares, at £2.17, should go a long way.

The group has developed a unique process that allows central banks to detect whether banknotes are genuine items or not. Many of us hold bills up to the light to see if they have a watermark, and store owners do the same, especially with large denomination bills. Spectra’s technology is much more sophisticated.

Known as a Level III covert feature, it uses a special powder injected into the banknotes themselves and detectable only by dedicated sensors.

High security: Cartor is one of the two companies worldwide that produce barcode stamps

Spectra manufactures both the sensors and the powders and its detection system is already used by some of the world’s largest central banks. These include well-known names whose currencies are used internationally, as well as banks concerned about the infiltration of state-sponsored terrorists into their economies.

Getting new clients can take years. Central banks are understandably cautious, so checks and balances are extensive. But Spectra has grown steadily since going public in 2011, and sales, profits and dividends are expected to accelerate over the next two to three years. Lawandy’s largest customer has just signed a major contract under which Spectra will replace old sensors with new models. The project should boost results, adding millions to the bottom line.

Then there’s the Cartor acquisition. Cartor’s customers include more than 150 postal companies worldwide. Today, only the UK and Germany use barcode stamps, but Cartor is expected to gain many new customers in the coming years, all interested in reducing fraud. Cartor also works with passports and tax stamps for products, such as whiskey, for export.

Now, as part of Spectra, the company is looking to move into the plastic banknote market.

Two companies have cornered the market for these banknotes: De La Rue in the United Kingdom and the Canadian group CCL. But Spectra and Cartor hope to break ground by incorporating Level III covert functionality within the plastic itself. More than 60 central banks around the world have switched from paper to plastic. But the new notes are vulnerable to fraud, like their paper predecessors, and Spectra is in advanced talks with several central banks that are concerned about security.

The agreement with Cartor is expected to accelerate this process. Cartor specializes in high security printing. Spectra specializes in security features. Together, they form a formidable force, especially as several central banks are interested in adding a third provider to the duopoly of De La Rue and CCL. There are other avenues for growth, such as selling Spectra’s smart fraud elimination technology to Cartor customers, including postal services.

Spectra joined Aim in 2011 and has grown earnings nearly 15 percent annually for nearly a decade. This year should be even better.

Brokers believe sales will more than double to $45m (£36m) when the sensor installation contract comes into effect. Profits are forecast to rise 22 per cent to $10 million and the dividend is expected to rise 6 per cent to 12.3 cents (9.9 pence), although a special payout could be on the cards this year or the next one.

Further increases in sales, profits and shareholder payouts are forecast for next year and also for 2026.

Midas Verdict: Spectra’s technology is known as the last line of defense against those trying to defraud countries, companies and consumers. The business has been progressing for years, but the partnership with Cartor should create a whole much greater than the sum of its parts. With state-sponsored terrorism on the rise and the world becoming more dangerous, Spectra’s technology is likely to be in demand. At £2.17, the shares are a buy.

Traded in: Aim Heart: DELIGHTED Contact: spsy.com

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