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Research: TMT
Q121 marks the first anniversary of Thin Film Electronics’ (Thinfilm) strategic pivot to commercialising its proprietary ultra-thin solid-state microbattery product for applications such as hearing aids, earbuds and wearable medical devices. The company looks on track to deliver initial product revenues in late 2021.
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Thin Film Electronics |
Happy first anniversary of microbattery strategy |
Q121 results |
Tech hardware & equipment |
1 June 2021 |
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Business description
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Thin Film Electronics is a research client of Edison Investment Research Limited |
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Q121 marks the first anniversary of Thin Film Electronics’ (Thinfilm) strategic pivot to commercialising its proprietary ultra-thin solid-state microbattery product for applications such as hearing aids, earbuds and wearable medical devices. The company looks on track to deliver initial product revenues in late 2021.
Year end |
Revenue ($m) |
EBITDA |
PBT* |
EPS* |
DPS |
P/E |
12/17** |
5.9 |
(50.9) |
(54.5) |
(0.06) |
0.00 |
N/A |
12/18** |
3.4 |
(49.3) |
(54.3) |
(0.93) |
0.00 |
N/A |
12/19** |
1.2 |
(30.6) |
(35.9) |
(0.61) |
0.00 |
N/A |
12/20 |
0.5** |
(11.4) |
(15.3) |
(0.04) |
0.00 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Discontinued business.
Potential cash runway into Q122
Thinfilm generated $0.5m revenues during Q120 from sales of legacy stock of anti-theft tags and no revenues in Q121. Payroll costs were $0.7m higher year-on-year in Q121 as management invested in engineering, manufacturing and business development personnel. EBITDA losses, excluding share-based payments, widened by $1.2m to $3.2m. Following a fund-raising programme generating $8.2m (net) from a private placing and exercise of warrants, cash (excluding restricted cash) totalled $7.6m. Management estimates that this cash, together with that generated from warrants that holders have already asked to exercise, is sufficient to fund the company well into Q321. Additional financing from warrants yet to be exercised potentially extends the cash runway into Q122. Management has stated that it intends to seek additional financing, including institutional investment in Europe and the US, to fund the company’s activities further into 2022.
On track for first microbattery sales by end FY21
As discussed in our March update note, Thinfilm formally completed its first product design in January and has manufactured its first prototype cells. It is continuing with its programme to transfer process technology from a sheet-based production line to the much higher-volume roll-to-roll line ahead of volume ramp-up by end FY21. Regarding the commercial agreement discussions with five OEMs in the hearables and wearable electronics markets referred to in April, one (a Fortune Global 500 company active in the wearables market) has moved to a commercial agreement under which Thinfilm will supply microbatteries for evaluation in H221; discussions with the others are ongoing.
Valuation: Potential market of over 1bn units a year
Thinfilm is initially targeting the medical wearables and hearables markets, followed by the connected sensor and sport and fitness wearables markets. Our scenario analysis calculates that a 5–10% share of these markets represents annual revenues of $330–550m and EBITDA of $211–365m. However, we note that the company is at the early stage of its development, with execution delivery and funding availability key to its success.
Exhibit 1: Financial summary
US$m |
2017 |
2018 |
2019 |
2020 |
||
Year-end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
5.9 |
3.4 |
1.2 |
0.5 |
EBITDA |
|
|
(50.9) |
(49.3) |
(30.6) |
(11.4) |
Operating Profit (before amort. and except.) |
|
|
(54.8) |
(53.3) |
(34.5) |
(11.4) |
Intangible Amortisation |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(3.0) |
(15.6) |
(42.4) |
0.0 |
||
Share-based payments |
(2.2) |
(1.8) |
(0.2) |
(0.6) |
||
Operating Profit |
(60.1) |
(70.6) |
(77.1) |
(12.0) |
||
Net Interest |
0.4 |
(1.1) |
(1.4) |
(3.9) |
||
Profit Before Tax (norm) |
|
|
(54.5) |
(54.3) |
(35.9) |
(15.3) |
Profit Before Tax (FRS 3) |
|
|
(59.7) |
(71.7) |
(78.5) |
(39.1) |
Tax |
0.1 |
(0.0) |
0.0 |
0.0 |
||
Profit After Tax (norm) |
(54.3) |
(54.4) |
(35.9) |
(15.3) |
||
Profit After Tax (FRS 3) |
(59.6) |
(71.7) |
(78.4) |
(39.1) |
||
Average Number of Shares Outstanding (m) |
862.7 |
58.6 |
58.6 |
393.2 |
||
EPS - normalised ($) |
|
|
(0.06) |
(0.93) |
(0.61) |
(0.04) |
EPS - (IFRS) ($) |
|
|
(0.07) |
(1.22) |
(1.34) |
(0.10) |
Dividend per share ($) |
0.00 |
0.00 |
0.00 |
0.00 |
||
EBITDA Margin (%) |
N/A |
N/A |
N/A |
N/A |
||
Operating Margin (before GW and except.) (%) |
N/A |
N/A |
N/A |
N/A |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
34.2 |
35.3 |
0.6 |
0.8 |
Intangible Assets |
2.2 |
2.4 |
0.0 |
0.0 |
||
Tangible Assets |
20.5 |
22.5 |
0.0 |
0.2 |
||
Other |
11.5 |
10.4 |
0.6 |
0.6 |
||
Current Assets |
|
|
115.1 |
44.1 |
11.7 |
6.9 |
Stocks |
0.7 |
2.6 |
0.0 |
0.0 |
||
Debtors |
16.2 |
8.9 |
2.8 |
1.1 |
||
Cash including restricted cash |
98.1 |
32.6 |
8.9 |
5.8 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(7.3) |
(8.1) |
(6.8) |
(32.7) |
Creditors |
(7.3) |
(8.1) |
(5.5) |
(29.5) |
||
Short term borrowings |
0.0 |
0.0 |
(1.4) |
(3.2) |
||
Long Term Liabilities |
|
|
(12.1) |
(11.5) |
(25.1) |
(21.9) |
Long term borrowings excluding finance leases |
0.0 |
0.0 |
(11.8) |
(9.7) |
||
Other long-term liabilities |
(12.1) |
(11.5) |
(13.2) |
(12.2) |
||
Net Assets |
|
|
129.9 |
59.7 |
(19.7) |
(46.9) |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(52.3) |
(52.3) |
(29.1) |
(11.9) |
Net Interest |
0.3 |
0.3 |
(1.4) |
(3.2) |
||
Tax |
(0.0) |
(0.1) |
0.0 |
0.0 |
||
Capex |
(27.1) |
(11.2) |
(5.1) |
(0.3) |
||
Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.0 |
||
Financing |
103.3 |
(0.0) |
0.0 |
13.3 |
||
Dividend payments and Other items |
0.2 |
(1.6) |
0.0 |
0.0 |
||
Net Cash Flow |
24.4 |
(64.9) |
(35.5) |
(2.1) |
||
Opening net debt/(cash) excluding finance leases |
|
(74.2) |
(98.1) |
(32.6) |
4.3 |
|
Finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(0.5) |
(0.6) |
(1.4) |
(0.7) |
||
Closing net debt/(cash) excluding finance leases |
|
(98.1) |
(32.6) |
4.3 |
7.2 |
|
Source: Company accounts
|
|
Research: TMT
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