Nynomic — Growth accelerates in H121

Nynomic (DB: M7U)

Last close As at 03/12/2024

39.00

−0.70 (−1.76%)

Market capitalisation

222m

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Research: Industrials

Nynomic — Growth accelerates in H121

Demand for Nynomic’s smart, miniaturised measurement technology is benefiting from the new automated production methodologies often referred to as Industry 4.0. Strong revenue growth in both FY20 and H121 was underpinned by multi-million-dollar follow-on orders from a longstanding customer involved in automation for medical laboratories. This particular application has grown rapidly because of the coronavirus pandemic but many other industries are deploying Nynomic’s technology to improve efficiency and make better use of natural resources. These trends support management’s medium-term growth target of revenue of €150.0m revenues with an EBIT margin of at least 15%, to be realised through a combination of organic and inorganic growth.

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Industrials

Nynomic

Growth accelerates in H121

Measurement instruments

Scale research report - Update

7 September 2021

Price

€51.4

Market cap

€292m

Share price graph

Share details

Code

M7U

Listing

Deutsche Börse Scale

Shares in issue

5.7m

Last reported net cash at end June 2021 (excluding €11.4m lease liabilities)

€2.1m

Business description

Nynomic is an integrated provider of photonics solutions based on a common technology platform. It uses non-contact optical technology to create customised systems for OEMs, which are deployed in the clean tech, green tech and life science sectors.

Bull

Ability to provide customised solutions for OEMs.

Addresses high-growth emerging markets.

Image Engineering acquisition opens new industry vertical.

Bear

Continued margin drag of sales and marketing and product development for acquisitions.

Presence in multiple sectors gives resilience but does not protect against general market weakness.

Potential for supply chain dislocation caused by global semiconductor shortage.

Analyst

Anne Margaret Crow

+44 (0) 20 3077 5700

Demand for Nynomic’s smart, miniaturised measurement technology is benefiting from the new automated production methodologies often referred to as Industry 4.0. Strong revenue growth in both FY20 and H121 was underpinned by multi-million-dollar follow-on orders from a longstanding customer involved in automation for medical laboratories. This particular application has grown rapidly because of the coronavirus pandemic but many other industries are deploying Nynomic’s technology to improve efficiency and make better use of natural resources. These trends support management’s medium-term growth target of revenue of €150.0m revenues with an EBIT margin of at least 15%, to be realised through a combination of organic and inorganic growth.

Record sales and EBIT during H121

After posting a 21% y-o-y revenue increase in FY20, Nynomic’s rate of growth has accelerated. Group revenue increased 46% y-o-y in H121 to €53.7m. There was double-digit growth in all three segments. EBIT grew by 89% to €6.8m. EBIT margin (as a percentage of sales) improved substantially, by 2.8pp to 12.7%. The group moved from €5.2m net debt (excluding financial liabilities from leasing) at end FY20 to €2.1m net cash at end H121. The strong balance sheet supported the acquisition of a 51% stake in Image Engineering in June for an undisclosed sum. The transaction opens up the high-growth market of calibration technology for multi-sensor systems, with a wide range of applications in a variety of industries.

Management raised guidance in August

In August management raised its FY21 guidance to over €90m revenues with further EBIT margin expansion. This guidance is backed by a strong order book totalling €70.3m at end June 2021.

Valuation: Trading at a discount to peers

Nynomic’s shares are currently trading at a modest discount to the averages for our sample of peers involved in instrumentation on all metrics. However, while consensus estimates show Nynomic’s revenues growing substantially more quickly than any of its peers, its FY1 EBIT margin is below the sample mean. This suggests there is potential for further share price appreciation if management can combine continued revenue growth with meaningful improvement in the operating margin. This should be possible as the investment in product development and sales and marketing for Spectral Engines and LemnaTec translates into profits.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/19

64.9

5.8

0.87

0.0

59.1

N/A

12/20

78.6

7.3

0.83

0.0

61.9

N/A

12/21e

99.9

13.3

1.60

0.0

32.2

N/A

12/22e

112.9

16.2

1.81

0.0

28.4

N/A

Source: Refinitiv

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

Growth noted during FY20 accelerates in H121

Exhibit 1: Revenues by segment H121

Exhibit 2: Revenues by geography H121

Source: Company data

Source: Company data

Exhibit 1: Revenues by segment H121

Source: Company data

Exhibit 2: Revenues by geography H121

Source: Company data

Record sales and EBIT during H121

After posting a 21% year-on-year revenue increase during FY20, an undisclosed amount of which was attributable to acquisitions made in the prior year, Nynomic’s rate of growth has accelerated. Group revenue increased by 46% year-on-year during H121 to €53.7m. There was double-digit growth in all three segments. Revenues attributable to the Life Sciences segment (99% increase) benefited from rising demand for medical devices including a follow-on order related to laboratory automation that was received in October 2020 from a long-standing customer and was worth c €25.0m over a two-year period. The Clean Tech segment (25% increase) experienced a recovery in demand for equipment for manufacturing semiconductors and electronic equipment. Demand from this segment was weak during H119 because of the global geopolitical climate, which stifled investment and led customers to postpone projects and purchases. Revenues attributable to the Green Tech segment grew by 57%.

Cost of materials as a percentage of sales, work-in-progress and finished goods and capitalised work increased by 5.6pp to 42.9% as a result of a change in product mix. Personnel costs and other operating costs increased by 14% and 32% respectively, reflecting higher revenues. EBIT grew by 89% to €6.8m. EBIT margin (as a percentage of sales) improved substantially, by 2.8pp to 12.7%, supporting management guidance of EBIT margin expansion for the full year.

Strong balance sheet

The group moved from €5.2m net debt (excluding financial liabilities from leasing) at end FY20 to €2.1m net cash at end H121, eliminating gearing (net debt/equity). Cash generated from operations was strong (€9.4m) and capital expenditure, which was attributed to replacing existing office and operating equipment, was only €0.8m. Management does not expect to make any significant investments in either tangible or intangible assets in the existing operating subsidiaries going forward. Instead, any substantial investments will be in the acquisition of strategic stakes in companies such as Image Engineering that take the group into new industry verticals (see below).

FY20 fund-raising activities support new acquisition

The company completed two fund-raising exercises in FY20: €5.1m in June 2020 from strategic investor Paladin Asset Management through a private placement at €19.95/share and €7.1m (gross) in November 2020 from a placing with institutional investors at €28.00/share. The funds raised supported the acquisition of 51% stake in Image Engineering in June 2021 for an undisclosed sum. Image Engineering is an established company that develops and manufactures test and calibration equipment for cameras and multi-sensor systems. The transaction opens up the high-growth market of calibration technology for multi-sensor systems for the group, with a wide range of applications in a variety of industries. Nynomic expects Image Engineering to generate sales of €5.0–6.0m during FY21 as a whole, around half of which will be consolidated into the group’s FY21 revenues.

Management confident about FY21 and beyond

In August management raised its FY21 guidance from the €80m+ revenues with further EBIT margin expansion given in February to over €90m revenues, also with further EBIT margin expansion. Although the guidance came with a note of caution regarding the continued uncertainty caused by the coronavirus pandemic, it is backed by a strong order book totalling €70.3m at the end of June 2021. The level is slightly lower than the record €74.1m reported at end Q121 because the order book includes the large follow-on order received in October mentioned above, which is being worked through.

Management believes the group remains well positioned for the medium and long term, with demand for its smart, miniaturised measurement technology supported by the new automated production methodologies loosely aggregated as industry 4.0. In March 2021, management raised its medium-term growth target of €100m sales with an EBIT margin of around 15% to €150.0m revenues, with an EBIT margin of at least 15%. Management intends to realise this goal through a combination of organic and inorganic growth.

Diversity of markets served

One of the key attractions of this stock is the diversity of applications deploying automated production supported by smart, miniaturised measurement technology. For example, earlier this year Nynomic’s subsidiary m-u-t became the first manufacturer of near infra-red (NIR) sensors specifically for measuring the amount of nitrogen, phosphorus pentoxide and dry matter ingredients in cattle manure, pig manure, biogas digestate and mixed manure. In June 2021 Nynomic and Novartis formed a partnership to accelerate the detection and reporting of bogus medicines by using a complete solution developed by Nynomic comprising a handheld scanner, smartphone apps and a cloud system for processing the data to authenticate medicines very quickly in the field. In July 2021, subsidiary LayTec extended the capabilities of its Flames metrology system to cover in line monitoring of the thickness of coatings used in roll-to-roll manufacture of organic LED (OLED) and organic photo-voltaic (OPV) films.

Valuation: Trading at a discount to peers

Exhibit 3: Listed peers

Name

Market cap (€m)

EV/Sales FY1 (x)

EV/Sales FY2 (x)

EV/EBITDA FY1 (x)

EV/EBITDA FY2 (x)

PE

FY1 (x)

PE

FY2 (x)

EBIT margin FY1 (%)

Revenue CAGR* 

Halma

13,517

8.2

7.6

33.2

30.4

49.6

44.9

20.9

8.3%

Hexagon

36,686

9.1

8.3

24.2

22.1

40.3

37.1

27.9

9.4%

Jenoptik

1,752

2.2

2.1

12.3

11.4

23.4

20.7

12.0

9.8%

Oxford Instruments

1,776

4.2

4.0

20.2

19.5

32.2

31.6

17.9

5.4%

Spectris

5,266

3.3

3.1

16.1

14.9

27.8

24.6

15.8

2.2%

Vaisala

1,306

3.2

3.0

19.1

17.1

38.1

34.2

11.4

7.1%

Mean

5.0

4.7

20.9

19.2

35.2

32.2

17.7

7.1%

Nynomic

292

3.1

2.8

17.4

14.7

32.2

28.4

14.3

17.4%

Source: Refinitiv. Note: Priced at 7 September 2021. *FY0–FY3.

Nynomic’s share price has risen by around 60% since the announcement of the second major order relating to laboratory automation in October 2020. At current levels, a comparison of Nynomic’s prospective consensus multiples with those in our sample of European listed companies involved in instrumentation shows the company is trading at a modest discount to the sample mean on all metrics. However, we note that while consensus estimates show Nynomic’s revenues growing substantially more quickly than any of its peers, its FY1 EBIT margin is below the sample mean. This suggests there might be potential for further share price appreciation if management can combine continued revenue growth with sustained improvement in the operating margin. This should be possible as the investment in product development and sales and marketing for Spectral Engines and LemnaTec translates into profits. We note that group EBIT margin was 15.0% in both FY17 and FY18.

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Edison Investment Research standard fees are £49,500 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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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

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United States of America

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