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Nanoco Group’s announcement that the collaboration with its European partner is essentially coming to an end is clearly disappointing news. We reduce our FY25 revenues by £2.5m and FY25 net cash by £2.1m to reflect this, although the contractual unwinding and potential restructuring may prompt further changes. While Nanoco is now clearly in a significant transitional state, the partnership with the Asian partner continues. The group’s intellectual property, expertise, manufacturing and test capability provide it with potential strategic value, with Nanoco’s strong balance sheet and low-cost model providing a degree of optionality.
Nanoco Group |
European partnership not moving forward |
Commercial update |
Tech hardware and equipment |
2 September 2024 |
Share price performance
Business description
Next events
Analyst
Nanoco Group is a research client of Edison Investment Research Limited |
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Nanoco Group’s announcement that the collaboration with its European partner is essentially coming to an end is clearly disappointing news. We reduce our FY25 revenues by £2.5m and FY25 net cash by £2.1m to reflect this, although the contractual unwinding and potential restructuring may prompt further changes. While Nanoco is now clearly in a significant transitional state, the partnership with the Asian partner continues. The group’s intellectual property, expertise, manufacturing and test capability provide it with potential strategic value, with Nanoco’s strong balance sheet and low-cost model providing a degree of optionality.
Year end |
Revenue* |
EBITDA* |
EPS* |
Net cash |
EV/sales |
P/E |
07/22 |
2.5 |
(2.1) |
(1.3) |
2.8 |
(1.6) |
N/A |
07/23 |
5.6 |
(0.5) |
(0.7) |
3.6 |
(0.7) |
N/A |
07/24e |
7.9 |
0.5 |
(0.3) |
20.0 |
(0.5) |
N/A |
07/25e |
6.8 |
(0.6) |
(0.4) |
13.0 |
(0.6) |
N/A |
Note: *Revenue, EBITDA and EPS include £6m annual Samsung licence revenue, drawn from deferred income. EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Lack of high-volume wins and partner restructuring
Following discussions with Nanoco’s European partner (which we believe is STMicro), Nanoco no longer expects to receive follow-on commercial orders for its first-generation sensing materials. The partner has also served notice on its joint development of second-generation materials, essentially bringing this partnership to an end. We believe the termination is a result of the partner not making adequate headway in securing high-volume design wins for its sensors, combined with a broader refocusing of strategic priorities on their part. STMicro announced a profit warning and restructuring plan in July 2024. Nanoco achieved all development milestones and had received positive feedback on the second-generation materials. Nanoco will negotiate end-of-project terms with their European customer and seek to remove obstacles to pursue small-scale market opportunities in sectors like industrial, defence and healthcare. The company’s joint development partnership with the Asian chemicals company remains ongoing.
Estimates cut, lengthy cash runway
We have reduced our FY25 revenue estimate by £2.5m, while leaving our cost base estimates largely unchanged (fixed cash cost base of £7.2m) pending further information on the partnership unwinding and potential restructuring. FY25 net cash reduces to £13.0m (from £15.2m previously) giving Nanoco about 20 months of cash runway, even if no further revenue-generating partnerships are secured. Our estimate changes are detailed below.
Valuation: IP and balance sheet provide support
With an estimated net cash position of £20m, dropping to £13.0m, Nanoco’s enterprise value is negative, based on FY24e net cash and around £3.0m based on our estimated FY25e figures. The group’s intellectual property, expertise, manufacturing and test capability provide potential strategic value, while Nanoco’s strong balance sheet and low-cost model providing a degree of optionality.
Changes in estimates
Our estimate changes are detailed below and will be refined once we have more detail on Nanoco’s unwinding of the partnership, together with potential restructuring. We remind investors that our FY24 and FY25 P&L figures include £6m licensing revenue from Samsung, stemming from Nanoco’s successful legal action and settlement. These revenues are drawn down from deferred revenue (£46.5m at H124e) and do not generate positive cash flows. Nevertheless, the group’s cost base is modest, at c £7.2m per annum, giving Nanoco about 20 months of cash runway in the absence of significant revenue from new customers or further cost rationalisation.
Exhibit 1: Estimate changes
July year end |
FY23 |
FY24e |
FY25e |
|||
Actual |
Unchanged |
Old |
New |
Change |
||
Revenues |
5.6 |
7.9 |
9.4 |
6.8 |
-27% |
|
EBITDA |
(0.5) |
0.5 |
1.5 |
(0.6) |
-140% |
|
Reported operating profit |
15.0 |
1.1 |
(0.3) |
(2.5) |
659% |
|
Reported operating margin |
267% |
14% |
-3% |
-36% |
||
Normalised net income |
(2.1) |
(0.7) |
1.0 |
(1.1) |
-208% |
|
Normalised diluted EPS (p) |
(0.66) |
(0.26) |
0.35 |
(0.38) |
-208% |
|
Net debt/(cash) |
(3.6) |
(20.0) |
(15.2) |
(13.0) |
-14% |
|
Source: Edison Investment Research
Exhibit 2: Financial summary
£m |
2022 |
2023 |
2024e |
2025e |
||
31-July |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
2.5 |
5.6 |
7.9 |
6.8 |
Cost of Sales |
(0.9) |
(0.8) |
(0.4) |
(0.1) |
||
Gross Profit |
1.5 |
4.8 |
7.5 |
6.7 |
||
EBITDA |
|
|
(2.1) |
(0.5) |
0.5 |
(0.6) |
Operating profit (before amort. and excepts.) |
|
|
(4.2) |
(2.9) |
(0.4) |
(1.5) |
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
18.9 |
2.5 |
0.0 |
||
Share-based payments |
(0.6) |
(1.0) |
(1.0) |
(1.0) |
||
Reported operating profit |
(4.8) |
15.0 |
1.1 |
(2.5) |
||
Net Interest |
(0.5) |
(0.7) |
0.2 |
0.7 |
||
Exceptionals |
0.0 |
(4.7) |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
(4.6) |
(3.6) |
(0.2) |
(0.8) |
Profit Before Tax (reported) |
|
|
(5.2) |
9.6 |
1.3 |
(1.8) |
Reported tax |
0.5 |
1.5 |
(0.5) |
(0.3) |
||
Profit After Tax (norm) |
(4.1) |
(2.1) |
(0.7) |
(1.1) |
||
Profit After Tax (reported) |
(4.7) |
11.1 |
0.8 |
(2.1) |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(4.1) |
(2.1) |
(0.7) |
(1.1) |
||
Net income (reported) |
(4.7) |
11.1 |
0.8 |
(2.1) |
||
Average Number of Shares Outstanding (m) |
308 |
322 |
278 |
290 |
||
EPS - normalised (p) |
|
|
(1.32) |
(0.66) |
(0.26) |
(0.38) |
EPS - normalised fully diluted (p) |
|
|
(1.32) |
(0.66) |
(0.26) |
(0.38) |
EPS - Basic Reported |
|
|
(1.52) |
3.44 |
0.29 |
(0.71) |
Dividend per share (p) |
0.00 |
0.00 |
0.00 |
0.00 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
1.8 |
7.7 |
8.6 |
8.0 |
Intangible Assets |
1.6 |
1.0 |
0.8 |
0.6 |
||
Tangible Assets |
0.2 |
2.4 |
3.5 |
3.1 |
||
Deferred income |
0.0 |
4.3 |
4.3 |
4.3 |
||
Other |
0.0 |
1.8 |
1.8 |
1.8 |
||
Current Assets |
|
|
9.0 |
43.1 |
23.3 |
16.8 |
Stocks |
0.2 |
0.3 |
0.7 |
0.9 |
||
Debtors |
1.5 |
34.0 |
2.1 |
2.3 |
||
Cash & cash equivalents |
6.8 |
8.2 |
20.0 |
13.0 |
||
Other (including proceeds from settlement receivable in FY24) |
0.5 |
0.6 |
0.6 |
0.6 |
||
Current Liabilities |
|
|
(2.4) |
(14.0) |
(9.0) |
(9.0) |
Creditors |
(1.5) |
(2.6) |
(1.6) |
(1.6) |
||
Tax and social security |
0.0 |
(0.8) |
(0.8) |
(0.8) |
||
Short term financial leases |
(0.2) |
(0.5) |
(0.5) |
(0.5) |
||
Short term bank debt |
0.0 |
(4.0) |
0.0 |
0.0 |
||
Other (including deferred licence income) |
(0.7) |
(6.1) |
(6.1) |
(6.1) |
||
Long Term Liabilities |
|
|
(4.0) |
(20.2) |
(38.6) |
(32.6) |
Long term financial leases |
(0.0) |
(1.4) |
(0.7) |
(0.7) |
||
Loan notes |
(3.9) |
(0.6) |
0.0 |
0.0 |
||
Other (including deferred licence income) |
(0.1) |
(18.2) |
(38.0) |
(32.0) |
||
Net Assets |
|
|
4.3 |
16.6 |
(15.7) |
(16.8) |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
4.3 |
16.6 |
(15.7) |
(16.8) |
CASH FLOW |
||||||
Operating Cash Flow |
(2.3) |
(0.4) |
0.5 |
(0.6) |
||
Working capital |
0.1 |
24.5 |
50.2 |
(6.5) |
||
Exceptional & other |
(0.2) |
(47.5) |
2.5 |
0.0 |
||
Tax |
0.7 |
(4.2) |
0.0 |
(0.3) |
||
Net Operating Cash Flow |
|
|
(1.8) |
(27.6) |
53.2 |
(7.4) |
Capex |
(0.1) |
(0.4) |
(2.1) |
(0.5) |
||
Net proceeds from Samsung settlement |
0.0 |
34.5 |
0.0 |
0.0 |
||
Net interest |
(0.0) |
(4.7) |
0.4 |
0.9 |
||
Equity financing |
5.4 |
0.0 |
(34.5) |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(0.6) |
(0.5) |
0.0 |
0.0 |
||
Net Cash Flow |
2.9 |
1.3 |
17.1 |
(6.9) |
||
Opening net debt/(cash) |
|
|
(0.3) |
(2.8) |
(3.6) |
(20.0) |
FX |
0.0 |
0.2 |
0.1 |
0.0 |
||
Other non-cash movements |
(0.4) |
(0.6) |
(0.8) |
0.0 |
||
Closing net debt/(cash) |
|
|
(2.8) |
(3.6) |
(20.0) |
(13.0) |
Source: Company data, Edison Investment Research
|
|
Research: Industrials
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