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While the pathway to commercial shipments is taking longer than anticipated, we now have better visibility that an inflection is set to happen. The first Nanoco displays are due for public launch this Christmas season. The first low volume shipments of Nano-materials to the company’s tier one US sensor partner are set to start in Q4 CY18. Successful stress testing of the new facility at Runcorn in H1 CY19 should pave the way for volume production, now anticipated for H2 CY19.
Written by
Nanoco Group |
Delays but visibility of move to volume production |
Trading update |
Tech hardware & equipment |
15 August 2018 |
Share price performance
Business description
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Analyst
Nanoco Group is a research client of Edison Investment Research Limited |
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While the pathway to commercial shipments is taking longer than anticipated, we now have better visibility that an inflection is set to happen. The first Nanoco displays are due for public launch this Christmas season. The first low volume shipments of Nano-materials to the company’s tier one US sensor partner are set to start in Q4 CY18. Successful stress testing of the new facility at Runcorn in H1 CY19 should pave the way for volume production, now anticipated for H2 CY19.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
EV/Sales |
P/E |
07/16 |
0.5 |
(12.3) |
(5.2) |
0.0 |
194.9 |
N/A |
07/17 |
1.3 |
(10.6) |
(4.5) |
0.0 |
73.5 |
N/A |
07/18e |
3.3 |
(6.9) |
(2.5) |
0.0 |
29.5 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Moving towards volume sales in sensors and display
Nanoco’s trading update confirms the design, build and commissioning of manufacturing facilities in Runcorn to support manufacture of nanomaterials for the company’s tier one US partner is progressing as planned. Small-scale shipments are expected to start in Q4 CY18, but complexities elsewhere in the supply chain mean volume shipments are now anticipated to start in H2 CY19 vs H1 previously. The doubling of manufacturing capacity at the Runcorn site to support the first agreement indicates the potential from this partnership is significant. The company did not reach commercial volume shipments in display in FY18, but we now have visibility of the first commercial shipments, with gaming monitors (manufactured by a Taiwanese display maker, using Wah Hong film) expected to ship for the FY18 festive season. While the high-end computer display market has the potential to generate useful incremental revenues, successfully penetrating the mid- to high-end TV market remains key to driving a significant inflection from this application.
Revenues below forecast but cash ahead
FY18e revenues of £3.3m were below our estimate (£4.7m) but year-end cash was higher at £10.7m (£7.4m). This is in part a result of the company not being able to recognise as high a proportion of payments from its tier one partner as anticipated. Revenues from the partner contributed £2.5m, while the £0.7m revenues from elsewhere (FY17 £1.3m) reflected the focus on the tier one customer and the slow commercialisation cycle in display.
Valuation: Opportunity and IP value still substantial
We have updated our FY18 estimates (Exhibit 1) to reflect the trading statement. While FY19 is now unlikely to benefit from volume shipments to the major customer in sensors, revenues from computer displays and the schedule of milestone and royalty payments (from the tier 1 partner and others) is anticipated to generate a significant y-o-y increase in revenues. We will introduce estimates for FY19 in a more detailed note, but anticipate a progressive improvement from here and believe both the company’s opportunity and IP value remain significant.
Estimate changes
While FY19 is now unlikely to benefit from volume shipments to the major customer in sensors, revenues from computer displays and the schedule of milestone and royalty payments (from the tier one partner and others) are anticipated to generate a significant y-o-y increase. We anticipate introducing estimates for FY19 in a more detailed research note in the next few weeks.
At this stage, we are treating the capex funding from the major partner to expand the Runcorn facility as a loan. We understand this will be paid pack through a royalty on volume shipments once they commence. Hence, our FY18e year-end net cash position is now comprised of £10.7m cash with £2.8m debt (previously no debt) relating to this structure.
Exhibit 1: Estimate changes
£m |
2016e |
2017e |
2018e |
2018e |
||
Actual |
Actual |
Old |
New |
Change |
||
Revenues |
0.5 |
1.3 |
4.7 |
3.3 |
-29% |
|
Gross profit |
0.3 |
1.1 |
3.4 |
3.1 |
-9% |
|
Gross margin |
63% |
81% |
72% |
93% |
||
EBITDA |
(11.2) |
(9.4) |
(5.5) |
(6.0) |
10% |
|
EBITDA margin |
nm |
nm |
nm |
nm |
||
Normalised operating profit |
(12.5) |
(10.7) |
(6.6) |
(7.1) |
9% |
|
Normalised operating profit margin |
nm |
nm |
nm |
nm |
||
Normalised net income |
(12.3) |
(10.6) |
(6.4) |
(6.9) |
9% |
|
Normalised diluted EPS |
(5.2) |
(4.5) |
(2.3) |
(2.5) |
9% |
|
Net debt/(cash) |
(14.5) |
(5.7) |
(7.4) |
(7.9) |
6% |
Source: Company data, Edison Investment Research
Exhibit 2: Financial summary
|
£m |
2015 |
2016 |
2017 |
2018e |
|
31-July |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
2.0 |
0.5 |
1.3 |
3.3 |
Cost of Sales |
(0.3) |
(0.2) |
(0.3) |
(0.2) |
||
Gross Profit |
1.7 |
0.3 |
1.1 |
3.1 |
||
EBITDA |
|
|
(8.1) |
(11.2) |
(9.4) |
(6.0) |
Operating profit (before amort. and except). |
|
(9.5) |
(12.5) |
(10.7) |
(7.1) |
|
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(0.9) |
0.0 |
(0.0) |
0.0 |
||
Share-based payments |
(0.6) |
(0.3) |
(0.2) |
(0.2) |
||
Reported operating profit |
(11.0) |
(12.8) |
(10.9) |
(7.4) |
||
Net Interest |
0.1 |
0.2 |
0.0 |
0.2 |
||
Joint ventures & associates (post tax) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
(9.3) |
(12.3) |
(10.6) |
(6.9) |
Profit Before Tax (reported) |
|
|
(10.9) |
(12.6) |
(10.9) |
(7.2) |
Reported tax |
1.9 |
2.0 |
1.8 |
0.0 |
||
Profit After Tax (norm) |
(9.3) |
(12.3) |
(10.6) |
(6.9) |
||
Profit After Tax (reported) |
(9.0) |
(10.6) |
(9.1) |
(7.2) |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(9.3) |
(12.3) |
(10.6) |
(6.9) |
||
Net income (reported) |
(9.0) |
(10.6) |
(9.1) |
(7.2) |
||
Basic average number of shares outstanding (m) |
221 |
237 |
238 |
278 |
||
EPS - normalised (p) |
|
|
(4.22) |
(5.20) |
(4.46) |
(2.49) |
EPS - diluted normalised (p) |
|
|
(4.22) |
(5.20) |
(4.46) |
(2.49) |
EPS - basic reported (p) |
|
|
(4.05) |
(4.47) |
(3.83) |
(2.58) |
Dividend per share (p) |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
N/M |
(76.6) |
179.7 |
148.9 |
||
Gross Margin (%) |
84.4 |
62.8 |
80.6 |
92.7 |
||
EBITDA Margin (%) |
(400.4) |
(2,367.4) |
(711.2) |
(183.2) |
||
Normalised Operating Margin |
(465.9) |
(2,639.4) |
(803.5) |
(215.8) |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
3.9 |
3.7 |
3.5 |
5.2 |
Intangible Assets |
1.8 |
2.4 |
2.6 |
3.2 |
||
Tangible Assets |
2.1 |
1.3 |
0.9 |
2.0 |
||
Investments & other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
27.2 |
18.7 |
8.9 |
13.3 |
Stocks |
0.2 |
0.2 |
0.2 |
0.0 |
||
Debtors |
0.9 |
2.0 |
0.7 |
0.2 |
||
Cash & cash equivalents |
24.3 |
14.5 |
5.7 |
10.7 |
||
Other |
1.8 |
2.0 |
2.4 |
2.4 |
||
Current Liabilities |
|
|
(2.0) |
(3.0) |
(1.4) |
(4.5) |
Creditors |
(1.9) |
(2.4) |
(1.3) |
(1.6) |
||
Tax and social security |
0.0 |
0.0 |
0.0 |
0.0 |
||
Short term borrowings |
(0.1) |
(0.0) |
0.0 |
(2.8) |
||
Other |
0.0 |
(0.5) |
(0.1) |
(0.2) |
||
Long Term Liabilities |
|
|
(0.0) |
(0.6) |
(0.6) |
0.0 |
Long term borrowings |
(0.0) |
0.0 |
0.0 |
0.0 |
||
Other long term liabilities |
0.0 |
(0.6) |
(0.6) |
0.0 |
||
Net Assets |
|
|
29.1 |
18.8 |
10.5 |
14.0 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
29.1 |
18.8 |
10.5 |
14.0 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
(8.1) |
(11.2) |
(9.4) |
(6.0) |
||
Working capital |
0.2 |
0.5 |
(0.3) |
0.4 |
||
Exceptional & other |
(0.9) |
0.0 |
(0.0) |
0.0 |
||
Tax |
1.3 |
1.8 |
1.9 |
1.9 |
||
Net operating cash flow |
|
|
(7.6) |
(8.9) |
(7.8) |
(3.7) |
Capex |
(0.9) |
(1.1) |
(1.6) |
(2.3) |
||
Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net interest |
0.1 |
0.2 |
0.1 |
0.2 |
||
Equity financing |
21.1 |
0.0 |
0.6 |
8.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(0.6) |
0.0 |
0.0 |
0.0 |
||
Net Cash Flow |
12.2 |
(9.7) |
(8.8) |
2.2 |
||
Opening net debt/(cash) |
|
|
(12.2) |
(24.4) |
(14.5) |
(5.7) |
FX |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
(0.1) |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(24.4) |
(14.5) |
(5.7) |
(7.9) |
Source: Company data, Edison Investment Research
|
|
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