Creotech Instruments — A leader in EEC spacetech and quantum

Creotech Instruments (WSE: CRI)

Last close As at 22/06/2024

PLN195.00

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PLN387m

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Creotech Instruments — A leader in EEC spacetech and quantum

Creotech Instruments is Poland’s leading space tech company, founded in 2012 by alumni of CERN, the European Organization for Nuclear Research. In July 2022, the company’s shares transferred to the main market of the Warsaw Stock Exchange’s following a PLN40m (gross) capital raise. With significant flight heritage, it is developing proprietary microsatellite subsystems and platforms for commercial sales from 2023. Creotech is one of only a few companies worldwide that is developing controls for quantum computers and quantum telecommunications. It is also active in earth observation, processing satellite and unmanned aerial vehicle (UAV) data. A key catalyst should be the planned launch of its low Earth orbit (LEO)-microsatellite platform, HyperSat, late in 2023 or early 2024.

Andy Chambers

Written by

Andy Chambers

Director, Industrials

Industrials

Creotech Instruments

A leader in EEC spacetech and quantum

Aerospace and defence

Spotlight Initiation

14 April 2023

Price

PLN163

Market cap

PLN323m

PLN4.65/€

Share price graph

Share details

Code

CRI

Listing

Warsaw Stock Exchange

Shares in issue

1.98m

Cash at 30 September 2022

PLN30.5m

Business description

Creotech Instruments, based near Warsaw, Poland, is a leading manufacturer of satellite systems, components, and advanced electronics for quantum computer control systems, and other applications.

Bull

Exposed to the rapidly growing spacetech and quantum computing markets.

Expanding customer base.

Has secured funding for the next phase of development.

Bear

An early-stage company in globally competitive markets.

Potential that nascent technologies may not work or be adopted.

Lack of financial visibility.

Analysts

Andy Chambers

+44(0)20 3077 5700

Natalya Davies

+44(0)20 3077 5700

Creotech Instruments is a research client of Edison Investment Research Limited

Creotech Instruments is Poland’s leading space tech company, founded in 2012 by alumni of CERN, the European Organization for Nuclear Research. In July 2022, the company’s shares transferred to the main market of the Warsaw Stock Exchange’s following a PLN40m (gross) capital raise. With significant flight heritage, it is developing proprietary microsatellite subsystems and platforms for commercial sales from 2023. Creotech is one of only a few companies worldwide that is developing controls for quantum computers and quantum telecommunications. It is also active in earth observation, processing satellite and unmanned aerial vehicle (UAV) data. A key catalyst should be the planned launch of its low Earth orbit (LEO)-microsatellite platform, HyperSat, late in 2023 or early 2024.

Historical values

Year

end

Revenue
(PLNm)

PBT
(PLNm)

EPS
(PLN)

DPS
(PLN)

P/E
(x)

Yield
(%)

12/18

31.0

(3.4)

(2.34)

0.0

N/A

N/A

12/19

30.6

0.1

0.18

0.0

N/A

N/A

12/20

33.7

2.2

1.27

0.0

N/A

N/A

12/21

40.6

0.4

0.39

0.0

N/A

N/A

Source: Refinitiv

Space, the initial frontier

Creotech’s advanced electronics technology has been used in collaborations with the European Space Agency (ESA). It has participated in a large number of ESA space projects that have enabled it to build a low-cost, high technology capability, including a profitable and growing microelectronics manufacturing operation. The experience gained is being applied to developing full proprietary space solutions through development of the HyperSat small satellite platform. The first is due to be launched around Q423/Q124 and is likely to be the catalyst for commercialising and growing revenues, which should consolidate Creotech’s position as a leading Central European space technology provider.

Applying capabilities in high-tech adjacencies

In parallel, Creotech has been developing its capabilities in quantum computing and precision time synchronisation, building on the founders’ experience from CERN. Over the remainder of this decade, it will seek to commercialise the quantum computing subsystems and components, including the White Rabbit Switch (WRS) products, which will allow it to develop potential time synchronisation applications for markets such as financial technology, communications and energy.

Valuation: Growing in the investment phase

While space companies faced challenges through 2022, Creotech's share price has reflected the sector-wide recovery so far in 2023. Last year’s share issue funds two-thirds of the capital plan to 2025, as Creotech moves closer to self-funding.

Poland’s leader in space and quantum technology

Creotech Instruments is based near Warsaw in Poland and employs around 200 people (including over 100 engineers). It is a leader in Central European spacetech, providing advanced space technologies alongside specialised electronics and hardware. It sells to a diverse range of global clients, comprising both commercial enterprises and research institutes.

The company was initially established as Creotech sp. z o.o. (a limited liability company) in 2008 by Grzegorz Kasprowicz, Grzegorz Brona and Paweł Kasprowicz, three scientists who had been working at CERN. It became a joint stock company, Creotech Instruments SA, on 3 January 2012.

Previously listed on the Warsaw NewConnect (NC) market since 2021, in July 2022 the shares were listed on the Warsaw Stock Exchange’s main market, following a successful public offering of PLN39.65m gross, with retail investors’ subscriptions being scaled back by 40%. The public offering comprised 396,558 series I shares, 375,848 of which were part of the Institutional Investors Tranche and 20,710 as part of the Retail Investors Tranche (the issue price per share was PLN100).

The operational management of the group is undertaken by an executive team with oversight from a supervisory board. The business is split into four operating segments: Space (mainly ESA projects to date), Electronics Production (contract manufacturing for internal and third-party use), Science (scientific and measuring equipment and systems) and Earth Observation (satellite and UAV data processing). Net sales have grown from PLN27.1m in FY18 to PLN33.4m in FY21, despite a dip in FY19. Adding capitalised R&D costs and grants as other operating income lifted total revenues to PLN40.6m in FY21, compared to PLN31.0m in FY18. Total FY21 revenues are shown by segment in Exhibit 1. Space is the leading segment, accounting for 44% of FY21 revenues. However, the company believes the Science segment, which represents quantum-related activities, is growing quickly and should rival Space by the end of the decade.

Exhibit 1: Creotech Instruments FY21 revenue by segment (PLN40.6m)

Exhibit 2: Creotech Instruments FY18–21 revenue and EBITDA margins (RHS)

Source: Creotech Instruments reports

Source: Creotech Instruments reports

Exhibit 1: Creotech Instruments FY21 revenue by segment (PLN40.6m)

Source: Creotech Instruments reports

Exhibit 2: Creotech Instruments FY18–21 revenue and EBITDA margins (RHS)

Source: Creotech Instruments reports

Management

A supervisory board of five members appointed at a general meeting and nominated by the main shareholders provides oversight and review of the performance of the management board. The management board currently consists of two members including a president (effectively the CEO). Grzegorz Brona is president of the supervisory board and CEO, and is one of the founders of Creotech Instruments. He was previously the head of research projects at CERN from 2009–11. From 2015–18, he was a member of the Council of the Polish Space Agency, becoming its president on 12 March 2018, appointed by Mateusz Morawiecki, the current Polish prime minister. He also helped to develop the National Space Program in Poland.

The other management board member is Jacek Kosiec (vice president). Mr Kosiec is another extremely well qualified and very experienced scientist and business expert. He has launched at least six start-up enterprises. From 2012 he helped to launch Creotech into the spacetech market, and it has since been awarded the highest value of ESA contracts with Polish companies to date. The company is currently seeking a new finance officer to join the board.

Shareholder structure

Following the June 2022 share issue, the total share capital of Creotech was 1,982,790 shares. The four founding shareholders each own 241,528 shares (12.18%), while the Industrial Development Agency owns 271,180 shares (13.68%) and PTE Allianz Polska SA holds 196,000 shares (9.89%). The remaining 549,498 shares represent the free float of 27.71%.

Strategy: To grow in spacetech and quantum computing

Creotech’s stated mission is to provide the global market with the most modern solutions that use synergies between space technologies, scientific equipment and industrial systems. Creotech is seeking to become a leader among Central European companies providing solutions for space and adjacent sectors, building on its space tech heritage.

It has built a strong position in supplying microelectronics to a variety of space missions that has allowed it to develop a standalone subsystem capability that is both profitable and cash generative. Among other uses, it has applied the funds received from the Q222 share issue to expand capacity in its contract manufacturing operations. It is using its microelectronics foundation to build capability and synergies within its scientific and measurement equipment operations to develop space mission subsystems and component products, as well as systems for quantum computing and precision time synchronisation for various applications.

The company has significant space heritage, on a variety of unique missions primarily for the ESA, while the development of full systems for external customers is still at a nascent stage. However, it the growth in demand for high-quality space data is clearl and verified by the significant increase in commercial LEO satellite deployments by a wide variety of companies for an increasing array of customer applications. It is noticeable that a large number of countries that have previously been unable to develop their own space programmes are being enabled by the lower-cost nature of the new space economy.

To satisfy the growing market, Creotech has been developing its own small satellite platform, HyperSat, which will support a proprietary constellation solution for customers including ground control and data processing systems. The first planned deployment of the HyperSat platform is EagleEye, a mission that aims to place a satellite in a very low orbit at the turn of 2023 and 2024, equipped with an innovative telescope and stabilisation system, providing around 1 metre resolution on the Earth's surface at a relatively low cost.

Over the next three years the company is also planning to develop proprietary space subsystems in a variety of technologies (eg communications, optics, power, propulsion) that can be supplied to customers either integrated in the HyperSat platform or as independent subsystems for third-party platforms and missions.

Creotech is positioning itself to support these ambitions, especially in central Europe. Quantum computing is at an even earlier stage, but Creotech has developed technologies using its experience and expertise gained from historical interactions with CERN.

Diversified potential revenue streams

Exhibit 3: Creotech Instruments revenue development, 2018–21

Source: Creotech Instruments

As stated, Creotech has an established microelectronic component and subsystems business, which management indicates generates positive earnings and cash flow. This facilitates the investment to develop increasingly diversified revenue streams in the following areas:

Space: Creotech completed the development of its own standardised microsatellite platform, HyperSat, in March 2022. The first application, EagleEye, is to be deployed in LEO in Q423 or Q124 as an operational orbital technology demonstrator for proprietary systems and third-party instruments. It will carry an optical telescope, made by Scanway, providing 1m high-resolution images of Earth. A further three smaller (c 10kg) HyperSat microsatellites for the Polish Imaging Satellites (PIAST) mission for the Polish Ministry of National Defence are expected to be deployed in 2025. The program’s primary objective is to create a national system for satellite observation of Earth to support the Polish Armed Forces.

Science (quantum controls and time synchronisation systems): Creotech aims to be one of only a few suppliers of comprehensive control systems for quantum computers and quantum telecoms, supporting a position as a leading European satellite data integrator in partnership with the EU Agency for the Space Programme (EUSPA) and the European Commission. Together with CERN, it is also seeking to develop and launch a sub-1 nanosecond synchronisation system for telecoms with CERN’s White Rabbit technology. Synergistic with the area of quantum computing, Creotech sees considerable potential in incorporating quantum key distribution systems into satellite constellations; it has recently launched a new quantum communication project, eCAUSIS.

Earth observation (UAV-drone and satellite data): as a side business, Creotech aims to become the leading Polish provider of unmanned aerial vehicle (UAV) support products by supplying systems such as risk analysis, planning and control for UAV missions. The company has a particular focus on beyond visual line of sight (BVLOS) applications with its CreoScan suite of hardware and software products.

Space-based data demand rising inexorably

Space is increasingly becoming of critical importance for a growing number of countries; according to Statista, in 2021 the global space economy grew to $470bn, up 5% compared to 2020. Northern Sky Research (NSR) forecasts that cumulative revenue for the industry will exceed $1.25tn by 2030, with its growth trajectory trending upwards at a CAGR of 6.25%. The primary driver of commercial space-based activity remains the increasing amount of global data being acquired and transferred for connectivity, communication and broadcast purposes. Satellite services provide an alternative to ground-based infrastructure where build costs are not economically viable, for example internet connectivity in large areas of Africa, where around 30% of the rural population still lacks broadband coverage. Of the c 2.7 billion people yet to connect globally, most live in the developing world, which provides an opportunity for space-based solutions if they are economically viable.

Demand for connectivity and remote monitoring services over satellite is driving a rapid increase in the number of satellites being launched each year. According to Statista, between 1957 (when Sputnik 1, the first artificial satellite, was launched) and 2019 (when SpaceX started to launch its Starlink satellites), the highest number of satellites to be launched in a single year was 143 in 1967. In 2020 1,202 small satellites (smallsat) were launched, 1,743 in 2021 and almost 2,400 in 2022. The increasing rate of satellite launches is expected to continue over the next decade. According to a report published by Euroconsult in December 2021, there will be an average of 1,700 new satellites launched each year between 2021 and 2030.

Exhibit 4: Number of small satellites launched globally (2011–22)

Source: Statista,

Competitive landscape

Creotech is one of several new entrants to the smallsat market, which has comparatively high technical barriers to entry. There are already a number of major players that have operational experience and industry credentials that provide a competitive advantage. Having said this, the current deployment of numerous smallsat constellations is kickstarting a new revolution in space operations, which should have a positive impact on the sector and may encourage an increasing number of new entrants; in 2022, according to Statista, just over 2,300 smallsats were launched (the vast majority were SpaceX satellites), representing a 32% increase compared to 2021 and almost 500% more than 2019. Therefore, the timely, successful launch of the PIAST constellation and the gathering of the anticipated data could fuel Creotech to grow extensively in the space sector.

In Exhibit 5 we show some of Creotech’s peers, both listed and private companies, which are becoming increasingly active in the LEO smallsat arena. We have only listed a selection and there are plenty of others (listed and unlisted), including more privately funded startups, or possibly more developed companies, adding value to Europe’s future space economy.

Exhibit 5: Selected peers in the space sector

Company

Ticker

Market

Description

Share price

Market cap

Market cap

Local ccy

Local ccy (m)

US$m

Listed peers

GomSpace Group

GOMX

OMX Nordic Exchange Stockholm

Develops and sells hardware and software components for smallsats and provides space data services. Main product categories are platforms, payloads, solar panels, ground stations and computers.

SEK

1.50

94

9

AAC Clyde Space

AAC

OMX Nordic Exchange Stockholm

Smallsat and system manufacturer and data services.

SEK

1.39

292

28

Planet Labs PBC

PL

New York Stock Exchange

Provider of global, daily satellite imagery and geospatial solutions; it designs, builds and operates the Earth observation fleet of imaging satellites.

US$

4.09

1,125

1,125

OHB SE

OHB

XETRA

Satellite manufacture and data services.

31.35

553

608

Spire Global

SPIR

New York Stock Exchange

Owns and operates a multi-purpose satellite constellation in LEO, consisting of approximately 100 satellites. It sells forms of data to customers from its own satellites.

US$

0.59

92

92

Astrocast

ASTRO

Oslo Stock Exchange

Provider of network of nanosatellites used in machine-to-machine (M2M) services.

NOK

7.00

275

26

Creotech

CRI

Warsaw Stock Exchange

In its space division, smallsat and system manufacturer and provider of data services.

PLN

163.00

323

70

Selected unlisted peers

Adcole Maryland Aerospace (AMA)

-

US

Developed MagicBus satellite platform (TRL 9), equipped with AOCS and optoelectric imaging system with a 25cm aperture telescope. Platform developed for optical applications and is subject to limited exports from the US.

-

-

-

-

Berlin Space Technologies

-

Germany

Produces a family of small LEO satellites. Its LEOS-50 satellite was placed in orbit in December 2015 as part of the Kent Ridge 1 mission. LEOS-100 for 200–500kg satellite missions is now commercialised (customers mainly based in Germany).

-

-

-

-

SITAEL

-

Italy

Developed two small satellites: S-50 and S-75. S-75 reached TRL 9 after successful launch in 2019.

-

-

-

-

Spaceflight Industries LeoStella

-

US

Develops satellite platforms weighing 10–300kg. Global-1 microsatellite (surveillance satellite) in 2018 became the first of four satellites in the ‘Global’ Earth observation mission to complete qualification tests.

-

-

-

-

Source: Refinitiv, company reports. Note: AOCS stands for attitude and orbit control systems. Priced at 13 April 2023.

Creotech space: microsatellites, HyperSat and more

Creotech: Expanding in the microsatellite space

Creotech is leveraging its extensive expertise in the space industry. It has designed, manufactured and tested numerous flight models of spacecraft subsystems for a wide range of clients, its largest being the ESA, which positions it well for development, commercialisation and expansion of its offering in the small satellite market.

Creotech’s most imminent goal is to finalise and commercialise HyperSat, its proprietary standardised satellite platform, which will supply the fast-accelerating market for microsatellites deployed in LEO. 70–80% of Creotech’s microsatellite platforms are produced in-house, with the remaining equipment, including star trackers and reaction wheels, acquired from third parties.

In Exhibit 6 we show the timeline of Creotech’s development of HyperSat. The next major milestone should be the launch of its EagleEye satellite at the turn of this year.

Exhibit 6: Creotech’s microsatellite platform timeline

Date

Occurrence

What this means

November 2017

Finalised contract with National Center for Research and Development (NCBiR) worth PLN20m to design and create HyperSat satellite platform.

Project work is originally scheduled to take 36 months and deliver an engineering model of the platform, which after passing the required testing, will be ready for operation in orbit. With the finalised platform, Creotech intends to gain traction from foreign entities for its application in both one-off missions and as part of larger constellations.

August 2021

Initiated building a constellation of three satellites as part of the PIAST project. Also tasked with integrating the function of the satellites with optical telescopes and a propulsion system. First commercial order for HyperSat.

The end recipient of the constellation will be the Ministry of National Defence of the Republic of Poland. Success would allow Creotech to further expand in the global space market.

August 2021

Signed a consortium agreement alongside Space Research Center of Polish Academy of Sciences (PAN) and the Nicolaus Copernicus Astronomical Center to develop, construct, launch and operate a satellite for UV observations (UVSat), compatible with the HyperSat standard.

CreoTech has the task of providing the UVSat satellite platform, compatible with the HyperSat standard, with a target mass of 40kg. It is expected to be operational for around five years. Over these years the company will supply data to both Polish and foreign astronomers. UVSat will observe the Galaxy in the UV spectrum, facilitating the detailed study of variable stars and phenomena related to black holes.

November 2021

Completion of the preliminary design review of observation satellite program EagleEye.

Allows the project to move to next phase, the critical design review, with the hope of launching the satellite in Q423 or Q124.

March 2022

Completion of the development phase of HyperSat platform.

Reaffirms plans to deploy first HyperSat-based EagleEye microsatellite to space in Q423 or Q124.

April 2022

Completion of the system requirements review of the PIAST satellite constellation.

Allows project to move to the next phase, the preliminary design review after which the constellation is intended to be placed in Earth orbit in 2024.

August 2022

Announced that Germany’s Exolaunch will manage the launch of EagleEye following a net €641,000 bid.

Elon Musk’s SpaceX Falcon 9 rocket will most likely be used to launch Creotech’s EagleEye microsatellite.

Q423/Q124

Launch of EagleEye satellite into VLEO (500km to 350km above Earth), most likely by Elon Musk’s SpaceX Falcon 9 rocket.

The launch will hopefully move the HyperSat platform from TRL 7 to TRL 9, which will enable full marketing of the product; This represents a large potential recurring revenue stream for the company, enabling it to penetrate the small satellite market.

Source: Creotech Instruments

HyperSat: Modularity enables usage for a wide range of applications

HyperSat is intended for space missions carried out by satellites with masses in the range of 10–60kg (with the possibility of scaling up to 120kg in the future), with likely applications including both Earth observation and telecommunications. The project has reached NASA’s 6th-7th Technology Readiness Level (TRL), which means that the components have been fully tested to appropriate laboratory conditions and thus can be introduced to the market and applied in commercial satellite constellations. Creotech is now well positioned for the next phase, which involves the first deployment of its EagleEye microsatellite based on the HyperSat standard into very-low Earth orbit (VLEO) in Q423 or early Q124, with the hope of achieving TRL 9, which would enable full marketing of the product.

The majority of satellite platforms currently marketed fall under the CubeSat category, involving the smallest nanosatellites with a basic unit of 1kg and scaled to 12U (1U = 10×10×10cm). Although CubeSats reduce launch costs due to decreased fuel consumption required to carry the lower payload weights, this can limit optimal functionality due to payload capacity constraints. Creotech is one of a few global companies working on a modular, microsatellite platform, which is adaptable to various space missions and compatible with Space VPX modules, already available on the market.

Exhibit 7: A satellite based on the HyperSat platform (30kg configuration)

Source: Creotech Instruments

The HyperSat microsatellite bus (platform) comprises exchangeable modules that offer a range of functionalities; they can support missions of a single satellite or constellations of a range of sizes (Exhibit 8). The designed platforms all have a LEO design lifetime of three years and reference design orbits of 350–600km. Furthermore, the average power available for the platforms is >50W, allowing installation of an Earth observation or telecommunication system. New subsystems can easily be added on account of the SpaceVPX standard and a hybrid backplane supporting third-party 3U and 6U CubeSat formats, adding to its payload flexibility. Creotech’s main HyperSat programmes are currently:

EagleEye (4HU)

4HU (40×40×40cm) base platform is substantially larger than CubeSats (1U= 10×10×10cm) allowing payloads of up to 60kg

Optimised for Earth observation missions with an installed optical telescope

Completed preliminary design review

SpaceX’s Falcon 9 rocket will likely be used to launch EagleEye in Q423/Q124

PIAST: Polish Imaging Satellite (1HU)

1HU (35×35×10cm)

Constellation of 3× 10kg 1HU microsatellites to be launched in 2024/25

Main use expected to be for small IoT missions, potentially to provide internet service for underserved areas of the world

On track to complete preliminary design review

HyperSat: UV-SAT (3HU)

3HU (35×35×45cm)

Carries telescopes that have the ability to perform simultaneous UV spectroscopy (200–300nm range) and photometric imaging with high time resolution

EagleEye is designed to be interoperable with the PIAST satellite constellation, thus offering a broad range of observation capabilities.

Exhibit 8: Scalability of HyperSat platform

Source: Creotech Instruments

Success of the EagleEye launch, which serves as a testbed for new Earth observation technologies, and is due for deployment in Q423 or Q124, has the potential to allow Creotech to tap into the rapidly expanding global smallsat market, which has been predicted to be valued at over $50bn in 2029, according to a variety of sources, including Creotech. In particular, the European smallsat market is highly fragmented with few dominant players, which may facilitate Creotech’s success and expansion in that area. If these projects are successful, the company expects production time for the HyperSat platforms from order to be in the six- to nine-month range, with each platform sold at a competitive price of $1–4m. By 2030, Creotech envisages the sale of c 30 buses per year, the majority of which (c 90%) would be to customers outside of Poland. In the next five to 10 years, we expect rapid development in the microsatellite market to drive strong growth for satellite platform revenues, which for Creotech could, assuming the sale of 30 buses in the price range $1–4m, lead to annual revenue of $30–120m, with potential operating profit margins indicated by management of c 40–50% as the company ramps up production.

Additional potential revenue streams in the space sector

Creotech expects to generate revenues from the integrated range of subsystems and components available for both its own and third-party satellite systems, including larger platforms. These are standardised avionics products that are lightweight, compact and robust, providing the platform (bus) on which the customer payloads can be deployed into orbit.

In addition to its primary goal of testing the HyperSat platform in space as part of the EagleEye project, the company is also in the process of developing the following proprietary subsystems within the next three years:

Satellite propulsion module (as part of the NCBiR project Polon-polski module). In partnership with the Lukasiewicz Research Network – Institute of Aviation, the project aims to design a model of a satellite propulsion module, enabling satellites weighing up to 200kg to change their orbital altitude or attitude and correct orbital perturbations as well as perform both space debris collision avoidance manoeuvres and deorbit burns (which cause rotation of the satellite so it can renter the Earth’s atmosphere). Total project value of PLN16.8m, with PLN6.8m of that financed by the NCBiR.

An on-board computer (as part of the NCBiR project involving the detection of collision hazards). In partnership with the Air Force Institute of Technology in Poland, the project aims to deliver a satellite-mounted system capable of detecting and calculating the trajectories of space debris through an optical module combined with an onboard supercomputer. Total project value of PLN7.8m with Creotech receiving funding from the NCBiR of PLN3.2m.

An innovative camera based on the scientific complementary metal-oxide-semiconductor (sCMOS) sensor, offering built-in data processing capabilities. It has a competitive advantage to existing solutions due to its customisability through user-accessible programmable resources (Creotech’s proprietary FPGA semiconductor device enables this), as well as autonomous operation through an advanced built-in Linux operating system. Total project value of PLN7.3m with Creotech receiving funding of PLN5.5m from the NCBiR.

All of the subsystems mentioned above will constitute independently marketed products that can be offered both as HyperSat platform modules or as autonomous, universal satellite modules, which can be sold to third-party customers for use on their satellite projects.. Clearly as customers such as smaller, embryonic-stage companies seek to deploy their constellations, the number of HyperSats and subsystems to be supplied by Creotech should grow rapidly, with replenishments every three to five years after launch providing a sustainable longer-term potential. Creotech enables customers to integrate the HyperSat platform with their cargo payloads at prices up to 80% lower than the majority of its competitors, according to management, which is an attractive prospect that has the potential to drive revenue growth.

Quantum computing: A booming industry

The quantum computer race is intensifying, with the number of new prototype technologies increasing exponentially; currently the two main architectures for housing qubits consist of the superconducting method or trapped ion method. Various sources indicate that the quantum computing market generated revenues of around $450–480m in 2021 and is set to grow by more than 30% for the remainder of this decade. A 30% CAGR would indicate a market size of around $5bn in 2030, although most forecasts exceed that, some significantly. We expect the hardware segment in particular to record appreciable expansion driven by rising product usage in AI and molecular simulation applications; this is the area in which Creotech is focusing its efforts.

Quantum computing is a nascent technology that exploits the fundamentals of quantum mechanics with the aim of processing exponential quantities of data at exceptionally rapid speeds. In May 2022 Creotech was invited by the EU to join a project to build the first large (100-qubit) computer. Scheduled for completion by 2025, the project envisages achieving technological readiness to build a 1,000-qubit computer by 2029.

In our recent Edison explains report, Quantum computing: A booming industry, we give an overview of the key technologies and concepts involved in developing these complex systems, recognising that they are extremely high level in nature and potentially difficult to understand. We hope that this at least provides some basic information regarding the subject as it evolves over the remainder of this decade.

Quantum computing, which holds the promise of surpassing the world’s fastest supercomputers, is now at the early stage where prototypes are functioning efficiently.

The main anticipated benefits of quantum computing are summarised below:

Speed: quantum computers are exceptionally rapid compared to classical computers due to the phenomenon that is entanglement. Qubits are set up according to an algorithm suitable for any chosen problem; the system then applies the laws of quantum mechanics until it reaches the relevant state that represents the answer. They have the potential to speed up financial portfolio management models, such as a Monte Carlo simulation.

Large memory capacity: superposition means that the capacity of these computers to store data doubles with each qubit.

Ability to solve problems of the greatest complexity: quantum computers are designed to perform multiple complex calculations simultaneously.

Simulations: quantum computers can simulate more intricate systems than classical computers, which could be of particular use in molecular simulations, an important aspect of drug development.

Optimisation: quantum computers have the ability to process a huge amount of complex data, which has the potential to transform AI.

Creotech: Offering electronic module systems to quantum computers

Creotech offers components for quantum computers, including control and measurement systems of quantum processors and advanced systems for time synchronisation in the White Rabbit standard. All products offered are based on electronic modules and are used to build control and measurement systems with parameters tailored to the needs of users. These systems enable ultra-fast data processing combined with microsecond guaranteed response time required in high-speed energy physics and in controlling qubits in quantum computers. Additionally, the company provides time synchronisation with sub nanosecond precision, maintained over long distances (hundreds of kilometres) based on its White Rabbit products. Creotech has been selected to join two consortia working on ground-breaking quantum computing projects, specifically tasked with the production of electronics:

building a quantum computer in the HPC (high performance computing) infrastructure of Poznan Supercomputing and Networking Center affiliated with the Institute of Bioorganic Chemistry of Poland; and

creation of the first large quantum computer for the European Commission.

Creotech participating in key EU quantum computer projects

The European High Performance Computing Joint Undertaking (EuroHPC JU) has selected Creotech in Poland, alongside five other European countries (Czech Republic, Germany, Spain, France and Italy) to contribute to the development of the EU’s first distributed network of large quantum computers, a project worth €100m. Creotech is tasked with delivering specialised control and measurement electronics to the infrastructure of the supercomputer of the Poznan Supercomputing and Networking Center (PSNC), which is affiliated with the Polish Academy of Sciences. This presents a significant growth opportunity for Creotech, as it will enable the company to showcase its capabilities to an international audience. Specifically, the company will be responsible for the development and implementation of electronics that control quantum computers, including a subsystem responsible for reading qubit state, as well as a cryogenic subsystem responsible for delivering signals to ion trap and ASIC cryogenic integrated circuits. This will be used to control the position of qubits and transport them between sections of a quantum processor.

Parallel to this project, in May 2022 the company was selected by the European Commission as part of a consortium, tasked with building a 100-qubit quantum computer by 2025 and achieving technological readiness to deliver a 1,000-qubit solution by 2029. Creotech is the sole Central and Eastern Europe representative for this project, which is the first of this magnitude in the field of quantum computing in EU history. The budget for the first phase of the project is expected to total c €18–20m, funded by the Quantum Flagship, which is a program dedicated to the development of quantum technologies as part of Horizon Europe. This project is hoping to solve the complex computing challenges that Europe has thus far struggled with including combinatorial optimisation issues and basic numerical issues in science related to the development of new drugs and materials; quantum computing has the potential to overcome these obstacles.

Since 2019 Creotech has also been involved in developing the market’s most advanced qubit control hardware ecosystem tailored to the needs of ion-trap experiments, called Sinara. It offers a 20-fold improvement in quantum system efficiency alongside reduced energy consumption. Compatible with ARTIQ (advanced real-time infrastructure for quantum physics) open software, Sinara appears a promising method for meeting the following needs of ion-trap experiments in quantum computers:

microsecond response times, sub-nanosecond synchronisation;

control system: flexible and modular, well tested, easy to build and reproduce;

multi-channel processing;

ultra-low noise (order of nV) digital to analogue converters (DAC);

laser frequency stabilisation; and

fast ion state readout and modification.

Ion traps are a promising proposed approach to house qubits in large-scale quantum computers and applicable in many other fields, such as mass spectrometry, metrology, quantum simulation and sensing. Once fully developed and available in the market, Sinara has the potential, in our view, to become a significant source of future recurring revenue for Creotech particularly, with Creotech being Europe’s first manufacturer of control electronics for new generation computers.

Contributing to the development of quantum key distribution systems

Synergistic with the area of quantum computing in which Creotech has specialised thus far, the company is launching a new quantum communication project entitled ‘European, Certifiable, Affordable, User-oriented, Secure, Integration-able, Scalable quantum key distribution solutions (eCAUSIS)’, tasked by the European Commission. This project focuses on the design and development of advanced quantum key distribution (QKD) systems. QKD uses the properties of quantum physics to exchange cryptographic keys used to encrypt and decrypt messages. This provides increased security and privacy to users, overcoming the cyber security risks associated with quantum communication. eCAUSIS is set to be delivered by an international consortium led by Creotech, partnered with the AIT Austrian Institute of Technology and Germany’s Fraunhofer Institute. The project is set to commence in March 2023 and is expected to run for 2.5 years with a total budget of €7m (€4.2m of which is allocated to Creotech). Overall eCAUSIS undoubtedly marks yet another critical project for Creotech in quantum technologies, which will likely strengthen its position in this innovative and promising market.

The company recognises the huge potential of incorporating QKD systems into satellite constellations. This would enable the secure exchange of exponentially large quantities of data obtained from satellites with government bodies and other third parties. This provides a potential large revenue opportunity, in our view, combining the company’s expertise in developing electronics for quantum computers with its proprietary microsatellite platform.

Major opportunity with White Rabbit capability

White Rabbit is an ethernet connectivity technology used in quantum applications and Creotech is one of only a few companies with the capability to develop electronics of the required complexity.

White Rabbit (WR) is a technology, developed at CERN, that distributes time and frequency with a sub-nanosecond accuracy to thousands of nodes through a standard optical fibre in ethernet-based networks (wired computer network systems); it enables users to synchronise remote devices over long distances of c 100km. The White Rabbit Switch (WRS) is the key element of the technology, distributing its own internal clock to nodes in the network using a hierarchical architecture (Exhibit 9); the WRS master node sends frequency information via data streams, which all other nodes in the system extract and process. The nodes consist of a phased-locked loop (PLL), which generates an output signal at the same frequency as the input signal. This removes any jitter and frequency drift in the clocks responsible for the offset detected. Initially these systems were aimed to be used solely in particle accelerators, but since then the end-market ambition has been shifted to a much broader scope of applications; these include areas such as telecommunication (5G), financial transactions, power grid synchronisation and geopositioning.

Exhibit 9: Simplified diagram of White Rabbit system

Source: Edison Investment Research

Several companies have started to commercialise WR, using their own hardware and software systems developed in-house, which requires a high level of expertise:

The first WR element developed was the WRS, financed by the Spanish government and CERN, and produced by Seven Solutions.

SyncTechnology is a Chinese company that offers a selection of WR products including a fan-less version of WRS-3/18 (hardware version 3.4), which provides improved heat dissipation performance.

OPNT is a Dutch company offering products and services in the area of ultra-precise synchronisation times.

Creotech’s WRS-3/18 version is a standalone version with 18 small form-factor pluggable (SFP) connectors (Exhibit 10). The company indicates its product is distinguished from others available in the market by its competitive pricing of c €3,000/WRS compared to c €10,000 offered by other companies. Currently its devices are mainly sold to academic institutions in Europe for use in particle accelerator experiment, with partnerships including University of Oxford. At present according to the company annual WRS revenue growth ia growing rapidly, and we see potential for continued high growth rates as the product gains traction from larger-scale customers outside academia.

Exhibit 10: Creotech’s White Rabbit Switch

Source: Creotech Instruments

Larger-scale WRS orders increasing

In September 2022, Creotech reached a critical milestone by concluding an agreement with Orange Polska, with the largest telecommunications infrastructure in Poland, for the delivery of WR time synchronisation systems enabling the maintenance of accurate synchronisation among network devices. This order has a net value of €20,000 implying the sale of around seven WRS. This marks the first use of the company’s WR technology in the field of telecommunications, and with Orange being such a well-established company in that particular market, we expect the order to facilitate increased product uptake.

In January 2023 Creotech received an order for the supply of WRS devices for the Dutch radio astronomy institute, ASTRON, with net value of PLN600,000 (c €128,400; 43 devices). The final date of order completion depends on the availability of the individual components. ASTRON intends to use the devices as a key component of time synchronisation in its LOFAR 2 radio telescope, developed to study the universe in the radio frequency spectrum of 10MHz to 6GHz; it has the potential to lay the foundations for future telescopes with improved applications and signal processing. This large-scale order enables Creotech to penetrate the big science market, in particular in radio telescope systems, which we expect to facilitate further orders in the future.

WR products present a large recurring revenue opportunity for the company with high gross margins (approaching the 40–50% level, according to management), with room for expansion with increased market understanding and diversification into a broader range of end-markets.

Active in Earth observation markets

In an additional business, Creotech aims to become the leading Polish provider of unmanned aerial vehicle (UAV)/drone support products by supplying systems such as risk analysis, planning and control for UAV missions. Projects in this segment are typically lower margin and thus far only contribute 3.7% of group revenue in FY21. The company is currently involved in two main projects in this area:

SAMPLE: an automatic obstacle monitoring system designed for use in pre-defined areas surrounding selected airports using high-resolution satellite imagery. The company is in the process of designing and manufacturing prototype ADS-B receivers for further research. The next step is to fully test and optimise the obstacle detection process on these receivers, when launched. This project is sponsored by the NCBiR and carried out by a consortium that includes the Polish Air Navigation Services Agency (PANSA) and AP-TECH. When the project is finalised, Creotech envisage its use in supporting UAV flights or helicopter operations in Europe, a market with increasing potential due to the current geopolitical uncertainty. Although this is not the main area of focus for the company, we see potential useful cash flow to support Creotech’s larger, more capital-intensive space products.

GREy: At the start of 2022 Creotech, alongside the Droneradar and Wrocyaw Institute for Spatial Information and AI (WIZIPISI), launched a new Geomatic Remote Eye (GREy) service. The GREy system enables visualisation and analysis of topography and terrain profile data, identifying obstacles such as sailing masts, chimneys and power lines. Creotech’s proprietary software-based drone route planning system, powered by AI algorithms, enables the drone operator to enter the specific route of a planned flight and quickly receive a comprehensive report in accordance with the Specific Operations Risk Assessment (SORA) methodology. The system eliminates the need for laborious integration of source data or complicated calculations. GREy has the potential to greatly improve the safety of UAV operations, which is already attracting considerable interest.

Financials

Since inception, Creotech has obtained over PLN90m in funding in various forms of support subsidies and public co-financing, supporting the R&D of key projects:

Exhibit 11: List of key grants and subsidies for current projects

Project title

Implementation period

Project funding

Project details

HARMONY01

June 21 - December 24

Value of CRI eligible expenses: PLN1.61m (100% of expenses qualified)

Aim: to develop an integrated tool supporting urban areas in managing related risks with climate change. This tool will help the authorities’ local government in protecting cities and their inhabitants from adverse effects of these changes.

IMPACT02

September 20 - August 23

Value of CRI eligible expenses: PLN7.26m

Value of co-financing for CRI: PLN5.02m

Aim: to research, refine and commercialise specific electronic solutions corresponding to two basic needs of quantum applications: (1) control through fast and precise generation of low noise signals; (2) ultra-precise timing control.

EagleEye

April 20 -December 23

Value of the project (consortium): PLN44.89m

Value of CRI eligible expenses: PLN25.65m

Value of co-financing for CRI: PLN12.82m

Aim: to develop an Earth observation satellite, progress the platform to TRL 9 and fine-tune a number of subsystems intended to be incorporated in microsatellites (raising them to TRL 9).

PIAST

June 21 - May 25

Value of CRI eligible expenses: PLN28.43m

Value of co-financing for CRI: PLN25.13m

Aim: to deploy a constellation of Earth observation satellites, which will carry out a series of orbital manoeuvres.

POLON

April 20 - March 23

Value of project (consortium): PLN16.81m

Value of CRI eligible expenses: PLN9.29m

Value of co-financing for CRI: PLN6.84m

Aim: to construct a model engineering satellite propulsion module (TRL 7), which will allow satellites up to 200kg to change altitude orbits, correct orbital perturbations, perform manoeuvres that will avoid collision with space debris and allow lowering the orbit for deorbiting. Module to be tested with HyperSat platform.

Laser satellite hazard detection

April 20 - March 23

Value of the project (consortium): PLN .79m

Value of CRI eligible expenses: PLN4.29m

Value of co-financing for CRI: PLN3.19m

Aim: to build a satellite system that detects space debris through a series of laser pulses. Creotech specifically is involved in the preparation of satellite computer processing data from optical sensors.

ARTIQ

April 20 - March 23

Value of project (Polish consortium): PLN2.42m

Value of CRI eligible expenses: PLN .29m

Value of co-financing for CRI: PLN1.04m

Aim: to develop a control and measurement system for experiments using the ARTIQ standard, in particular for optical and laser systems in an international consortium (POLBER program).

SAMPLE

November 20 - June 23

Value of the project (consortium): PLN17.52m

Value of CRI eligible expenses: PLN7.75m

Value of co-financing for CRI: PLN5.58m

Aim: to develop data-based solutions related to securing the trajectory of landings on airports. The tools created as part of the project will enable automation of the process of detecting air obstacles.

sCMOS camera

January 20 - June 23

Value of CRI eligible expenses: PLN7.31m

Value of co-financing for CRI: PLN5.45m

Aim: to develop a sensor-based camera sCMOS for astronomy applications as a European alternative to American cameras.

eCAUSIS

July 22 - January 25

Total budget of project is c €6.5m (€1.7m of which is allocated to the company).

Aim: to develop, certify and produce parts for advanced quantum key distribution systems.

Comet Interceptor

December 21 - June 22

Value of 1st phase is €165,000

Aim: to design and manufacture components for one of the Comet Interceptor probe’s research instruments.

Source: Creotech Instruments = CRI. Note: Project value is the value of eligible expenses for the entire consortium companies. Value of CRI eligible expenses is the value of dedicated expenses subject to co-financing. Value of co-financing for CRI is the value of actual co-financing/amount of dedicated grant (depending on the grant, this value may ray range from 50% to 100% of eligible expenses).

Financial performance from 2018 to 2021

Creotech has increased revenues over the last couple of years driven by increased electronic products (contract manufacturing) and Science (scientific and measuring equipment) sales as well as increased other operating income, which essentially represents both capitalised R&D costs and grants received to fund projects. From FY22 we expect further progress as the capacity expansion starts to be utilised, with management indicating a positive impact on order intake. Both EBITDA and PBT have been positive since 2019. Despite a likely dip in FY22, evident in 9M results (Exhibit 13) we expect margins to progress during the remainder of the decade, given the expected growth in the intrinsically higher-return Space segment and Science (quantum computing and time synchronisation segments).

Exhibit 12: Creotech Instruments financial summary 2018–21

Year end 31 December, PLNm

FY18

FY19

FY20

FY21

Income statement

Space

20.1

19.3

17.3

18.1

Electronics production

4.4

3.7

5.6

8.9

Earth observation

0.7

1.1

1.4

1.5

Science

1.8

1.4

4.7

4.8

Net product sales

27.1

25.5

29.0

33.4

Other operating income

3.8

5.1

4.8

7.3

Total revenues

31.0

30.6

33.7

40.6

EBITDA

(2.3)

2.0

3.7

3.2

EBITDA margin

(7.4%

6.6%

11.0%

8.0%

EPS (PLN)

(2.34)

0.18

1.27

0.39

Weighted average number of shares (m)

1.47

1.47

1.47

1.51

Balance Sheet

Total non current assets

9.4

9.2

15.0

21.5

Total current assets

13.9

12.2

15.7

24.5

Total Assets

23.3

21.4

30.7

46.1

Total non current liabilities

3.0

5.0

10.2

15.6

Total current liabilities

15.2

11.0

13.3

12.1

Total liabilities

18.1

16.0

23.5

27.7

Shareholders equity

5.2

5.4

7.2

18.3

Cash flow

Net cash from operating activities

(1.4)

(4.9)

(0.5)

(11.3)

Net cash from investing activities

(2.8)

(1.4)

(6.3)

(8.2)

Net Cash from financing activities

5.1

6.7

10.2

25.0

Net cash flow

0.9

0.4

3.4

5.5

Cash & cash equivalent end of year

2.5

2.9

6.3

11.9

Source: Creotech Instruments reports

Results for the first nine months of FY22

There was a reduction in net sales in the first nine months of FY22 (9M22), largely due to lower activity levels on the CreoDIAS data repository project, which was operating at significantly limited levels despite its contract extension into 2022. The contract generated PLN9.2m lower net sales during the period compared to the prior year. While the other segments and other operating income compensated for the decline to a degree, overall revenue decreased by 16%.

Exhibit 13: Creotech Instruments financial summary 9M22 versus 9M21

PLNm

9M21

9M22

Change

Net sales

22.2

15.0

-33%

Other operating income

6.61

9.4

42%

Total revenues

28.8

24.4

-16%

EBITDA

3.2

(1.6)

-150%

EBITDA margin

11.2%

-6.7%

-160%

EPS (PLN)

0.54

(2.32)

-529%

Number of shares (m)

1.59

1.98

25%

Cash and cash equivalents at 30 September

8.1

30.5

277%

Source: Creotech Instruments reports

CreoDIAS was the lowest margin project so the EBITDA from the Space segment only fell by PLN47k. The pressure on EBITDA was more acute in the contract manufacturing and the Science segments, where supply chain disruption delayed contract fulfilment, exacerbated by higher costs as component costs increased significantly.

As the company continued to invest to support anticipated growth, total operating expenses were PLN1.7m or 6% higher at PLN28.9m, including workforce and input costs being 71% and 63% higher respectively. Self-funded R&D costs increased in line with the intensity of activity. These increases were largely offset by a 56% decline in outsourced services cost, which fell PLN7.7m to PLN6.2m, primarily reflecting the lower pace of activity of the CreoDIAS contract.

Net cash increased from PLN11.9m at end FY21 to PLN30.5m at end Sept 2022, bolstered by the Q322 net PLN37m capital raise. The funds raised should cover around two-thirds of the capital allocation plan until 2025, as laid out in the prospectus, and subject to any additional unenvisaged utilisation.

The main expected requirements of capital through 2025 totalling PLN55.7m in the prospectus are:

PLN21.0m: R&D for satellite projects as well as quantum and UAV systems.

PLN6.5m: expansion of sales and marketing and support for foreign sales activities.

PLN16.7m: expanding production and testing capacity.

PLN3.0m: expansion of engineering capabilities and IT.

PLN0.5m: implementation of new IT programmes facilitating scaling up the business.

PLN8.0m: potential M&A in the sectors in which Creotech operates.

Sensitivities

We note some of the key sensitivities for the company over and above the normal economic risks faced by all businesses:

Market competition: while much of the technology involved in the smallsat market and quantum computing is relatively new, there is increasing competition and a rapid pace of new technology development. This risk can also extend to key personnel being attracted to competing firms. We note that Creotech is still early stage in terms of revenue; it is not possible to assess whether its products will be accepted by the market and whether it will be able to establish suitable sales channels in a timely fashion.

Space industry: there is inherent risk in a business where the majority of assets are positioned in orbit around the Earth. In addition, the space market has essentially transitioned from governmental stewardship to commercial entities and sometimes individuals. As this transition continues, it is likely that new risks will become apparent, for example the successful entry into service of new, lower-cost launch platforms by new suppliers.

Geopolitical considerations: the full implications of the war in Ukraine have yet to be realised in terms of the space industry. However, the more cooperative operational environment has been undermined with Russia unlikely to be a partner nation in space programmes in the foreseeable future. However, with the increased focus on national security due to the war, including the use of data from satellites, this could play to the strengths of companies like Creotech. The Earth observation satellite and communications segment programmes should lead to stronger security and defence ties for both Europe and NATO.

Additional M&A: as the company grows its financial resources it may seek to develop the business via further acquisition, and hence there is risk in identifying viable targets and integrating them correctly.


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This report has been commissioned by Creotech Instruments and prepared and issued by Edison, in consideration of a fee payable by Creotech Instruments. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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20 Red Lion Street

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Norcros — In-line update highlights undervalued entity

Norcros’s FY23 trading update highlighted a solid performance, particularly in the UK in H2, as well as the closure of the loss-making Norcros Adhesives division. We believe that Norcros’s proven strategy remains on track, which should allow it to unlock significant market share gain and M&A opportunities given its robust balance sheet. We also believe that its key strengths are undervalued and that most, if not all, of the legacy issues, particularly relating to the pension, have been resolved. We maintain our estimates and our 252p/share valuation implying c 40% upside.

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