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Nanoco’s H1 results reflect the slow commercialisation cycle in display although H2 should improve significantly as the first payments from the company’s large, US-listed corporate partner boost revenues and cash flows. While visibility is still limited, the scale of investment and additional capacity being added indicate that the potential from this partnership is significant. Progress in lighting and medical imaging also remind us of the potential of Nanoco’s IP and expertise across a range of applications.
Written by
Nanoco Group |
Major US partner to drive significant inflection |
Interim results |
Tech hardware & equipment |
10 April 2018 |
Share price performance
Business description
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Analysts
Nanoco Group is a research client of Edison Investment Research Limited |
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Nanoco’s H1 results reflect the slow commercialisation cycle in display although H2 should improve significantly as the first payments from the company’s large, US-listed corporate partner boost revenues and cash flows. While visibility is still limited, the scale of investment and additional capacity being added indicate that the potential from this partnership is significant. Progress in lighting and medical imaging also remind us of the potential of Nanoco’s IP and expertise across a range of applications.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
EV/sales |
P/E (x) |
07/16 |
0.5 |
(12.3) |
(5.2) |
0.0 |
199.3 |
N/A |
07/17 |
1.3 |
(10.6) |
(4.5) |
0.0 |
75.1 |
N/A |
07/18e |
4.7 |
(6.4) |
(2.3) |
0.0 |
21.4 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
H1 results reflect slow progress in display
H1 results reflect the slow commercialisation cycle in display. The decline in revenues from £0.68m in H117 to £0.20m reflect primarily the absence of service and licence revenue. The loss before tax was £4.8m (£6.4m in H117), while net cash was £8.7m vs £5.7m at Y/E17, boosted by the £8.0m placing in November.
Major US partner to drive significant H2 improvement
The commercial launch of gaming-focused computer displays will generate increased product revenues in H2 but a significant inflection from adoption in televisions now looks unlikely this year. Nevertheless, we expect a very significant improvement in financial performance in H2, driven by the initial payments from Nanoco’s large US corporate partner which is funding the company to scale up and mass produce nano-particles for advanced electronic devices. Elsewhere, in horticultural lighting, the company expects to move from trials to first commercial orders in the next 12 months, while in life sciences the initial pre-clinical toxicity studies have yielded positive results.
Transformative potential
The company cannot disclose details on the partner or the target application, but the considerable potential of this partnership is becoming increasingly apparent. The company expects to receive significant funds from the partner in H2 to support the scale-up ready for mass production in H119. Progress is on track and an agreement has now been put in place to take over 10,000 sq ft of additional space at the Runcorn site, doubling the current footprint. To help calibrate, the current facilities have capacity to produce CFQDs for circa one million large televisions pa.
Valuation: Promising picture despite low visibility
At this stage there is insufficient detail to either alter our near-term estimates or introduce new forecasts for FY19 or beyond. Visibility on the implications of both this new partnership and progress elsewhere should improve progressively over the course of this year. Nevertheless, with this partner providing significant near-term revenue potential and diversification of customers/applications, Nanoco’s prospects now look meaningfully more promising.
Exhibit 1: Financial summary
£'m |
2015 |
2016 |
2017 |
2018e |
||
31-July |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
2.0 |
0.5 |
1.3 |
4.7 |
Cost of Sales |
(0.3) |
(0.2) |
(0.3) |
(1.3) |
||
Gross Profit |
1.7 |
0.3 |
1.1 |
3.4 |
||
EBITDA |
|
|
(8.1) |
(11.2) |
(9.4) |
(5.5) |
Operating profit (before amort. and except). |
|
(9.5) |
(12.5) |
(10.7) |
(6.6) |
|
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) |
(6.8) |
||
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) |
(6.4) |
Profit Before Tax (reported) |
|
|
(10.9) |
(12.6) |
(10.9) |
(6.6) |
Reported tax |
1.9 |
2.0 |
1.8 |
0.0 |
||
Profit After Tax (norm) |
(9.3) |
(12.3) |
(10.6) |
(6.4) |
||
Profit After Tax (reported) |
(9.0) |
(10.6) |
(9.1) |
(6.6) |
||
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) |
(6.4) |
||
Net income (reported) |
(9.0) |
(10.6) |
(9.1) |
(6.6) |
||
Basic average number of shares outstanding (m) |
221 |
237 |
238 |
278 |
||
EPS - normalised (p) |
|
|
(4.22) |
(5.20) |
(4.46) |
(2.29) |
EPS - diluted normalised (p) |
|
|
(4.22) |
(5.20) |
(4.46) |
(2.29) |
EPS - basic reported (p) |
|
|
(4.05) |
(4.47) |
(3.83) |
(2.38) |
Dividend per share (p) |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
nm |
(76.6) |
179.7 |
251.8 |
||
Gross Margin (%) |
84.4 |
62.8 |
80.6 |
72.0 |
||
EBITDA Margin (%) |
(400.4) |
(2,367.4) |
(711.2) |
(117.5) |
||
Normalised Operating Margin |
(465.9) |
(2,639.4) |
(803.5) |
(140.6) |
||
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 |
11.1 |
Stocks |
0.2 |
0.2 |
0.2 |
0.2 |
||
Debtors |
0.9 |
2.0 |
0.7 |
1.2 |
||
Cash & cash equivalents |
24.3 |
14.5 |
5.7 |
7.4 |
||
Other |
1.8 |
2.0 |
2.4 |
2.4 |
||
Current Liabilities |
|
|
(2.0) |
(3.0) |
(1.4) |
(1.8) |
Creditors |
(1.9) |
(2.4) |
(1.3) |
(1.3) |
||
Tax and social security |
0.0 |
0.0 |
0.0 |
0.0 |
||
Short term borrowings |
(0.1) |
(0.0) |
0.0 |
0.0 |
||
Other |
0.0 |
(0.5) |
(0.1) |
(0.6) |
||
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 |
14.6 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
29.1 |
18.8 |
10.5 |
14.6 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
(8.1) |
(11.2) |
(9.4) |
(5.5) |
||
Working capital |
0.2 |
0.5 |
(0.3) |
(0.6) |
||
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) |
(4.2) |
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) |
1.7 |
||
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) |
(7.4) |
Source: Company data, Edison Investment Research
|
|
eOne’s bolt on acquisition of Whizz Kid in the UK further builds on its expanding capabilities in the non-scripted television production segment. The £6.9m consideration paid for a 70% interest will be part funded utilising some of the excess proceeds of the recent placing and shares.