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Research: TMT
Trackwise Designs has signed a three-year product manufacture and supply agreement with a UK electric vehicle OEM. The agreement is potentially worth up to £38m in total, subject to pricing revisions, and will generate up to £5.0m in revenues in FY21. This will be the first full series production of flexible circuits incorporating Trackwise’s Improved Harness Technology (IHT). The agreement represents a step change in sales as total revenues for H120 were £2.4m, of which IHT was only £0.3m.
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Trackwise Designs |
First series production order for IHT
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Technology |
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18 September 2020 |
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Trackwise Designs is a research client of Edison Investment Research Limited |
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Trackwise Designs has signed a three-year product manufacture and supply agreement with a UK electric vehicle OEM. The agreement is potentially worth up to £38m in total, subject to pricing revisions, and will generate up to £5.0m in revenues in FY21. This will be the first full series production of flexible circuits incorporating Trackwise’s Improved Harness Technology (IHT). The agreement represents a step change in sales as total revenues for H120 were £2.4m, of which IHT was only £0.3m.
Ramping up production for automotive sector
The agreement commences in January 2021. It follows on from the £0.6m order announced in February 2020, which supported the start of vehicle production and was awarded on the completion of successful funded development activities during FY19. The IHT-enabled power and balance flexible circuits are being used for both high- and low-voltage circuits in the electric vehicles' batteries where it reduces the part count and assembly time, and saves on space and weight.
Medical and aerospace sectors to follow
Management expects that the transition to volume production for the EV OEM will be followed by ramp-ups for customers in other sectors. Trackwise is collaborating with five medical catheter customers on development work, some of which it expects will convert to production volumes during FY21. Its ongoing collaboration agreement with GKN Aerospace on ice protection systems could potentially lead to production volumes by FY23. Trackwise is in the process of transferring most of its RF production to Stevenage Circuits, acquired in March 2020, so it can increase IHT production capacity at its Tewkesbury site to support anticipated demand.
Valuation: Need to focus on IHT potential
First half revenues, while up 55% y-o-y, imply a reduction in FY20 consensus estimates. Our peer multiples-based analysis shows Trackwise’s shares trading towards the upper end of the range of year 2 P/E multiples for our sample of advanced printed circuit board manufacturers (mean is 13.6x, with CMK at 21.3x and KCE Electronics at 26.2x). This suggests that the shares would be fairly priced at current levels if Trackwise was merely another specialist printed circuit board (PCB) manufacturer rather than the inventor of a disruptive technology such as Ceres Power or Ilika. However, this approach fails to recognise the potential of the IHT business. We will explore the value ascribable to this activity in our initiation note following the publication of interims next week.
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Consensus estimates
Source: Refinitiv |
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Research: Industrials
Blue Cap has performed relatively well during the coronavirus pandemic. Reported revenues rose 8% in H120 while organic decline was limited to 12%, despite exposure to the industry sector including automotive. For FY20, Blue Cap expects a slight decline in revenues (also due to portfolio changes) and a significant decline in adjusted EBIT. Despite positive and negative swings in the NAV of the individual holdings, Blue Cap’s overall NAV remained broadly unchanged at €138.5m at H120. The current share price reflects a large discount of 46% to the NAV per share of €34.68.