Nano Dimension
Written by
Nano Dimension |
Major commercialisation milestones reached |
Q316 results |
Tech hardware & equipment |
17 November 2016 |
Share price performance
Business description
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Q3 was an exciting quarter for Nano Dimension as it delivered its first DragonFly systems to potential customers for evaluation and raised US$13.8m (gross) to provide finance as it moves into the commercial phase of development. The company appears on track to complete the beta testing phase mid-2017 and to deliver 50 printers during FY17. However, we have revised our estimates down to model the impact of moving to a leasing model during the beta test phase while leaving our indicative valuation broadly unchanged.
Year |
Revenue (US$m) |
EBITDA** |
PBT* |
EPADS |
DPADS |
P/E |
12/15*** |
0.0 |
(2.4) |
(2.1) |
(0.39) |
0.00 |
N/A |
12/16e |
0.0 |
(4.9) |
(5.0) |
(0.60) |
0.00 |
N/A |
12/17e |
5.2 |
(8.6) |
(8.8) |
(0.89) |
0.00 |
N/A |
12/18e |
35.7 |
11.3 |
11.0 |
0.93 |
0.00 |
1.4 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **EBITDA is stated after deducting amortisation of capitalised R&D. ***Translated from NIS.
Major milestones to commercialisation reached
Nano Dimension delivered the first two DragonFly 2020 printers for evaluation during Q3. The first went to an Israeli defence company, the second to a distribution partner in California. Management notes that feedback so far has been positive. All of this will potentially generate leasing revenues, although maximising this is less important than getting technical feedback and establishing long-term relationships with quality customers. Management expects to deliver a total of 50 printers during FY17, including around 35 in the commercial roll-out during H217 and to scale this up further during FY18.
Placing to fund commercialisation phase
Operating losses reduced by 1% sequentially during Q316 to US$1.7m (28% increase y-o-y) as the number of people engaged in R&D rose to 67 but professional services and other general expenses reduced. Nano Dimension raised US$12.0m (gross) during the quarter through a placing and a further $1.8m (gross) through an over-allotment option, both at US$6.50/ADS. The funds will be used to support the ramp-up in volume, including a c US$1.5m investment in expanding the ink production capability. Management expects this to be in place during Q217, ahead of the commencement of volume sales in H217. According to management, cash burn is currently around $1m/month.
Valuation: Significant upside on volume roll-out
Delivery to our estimates and key milestones over the next year would justify significant share price appreciation, with our base case valuation returning a fair value of NIS9.87/ordinary share, US$12.97/ADS (NIS9.93/ordinary share, US$12.86/ADS before the fund-raising), excluding any additional potential contribution from third-party ink sales or early-stage development programmes. The current share price factors in the risks of setbacks to the commercialisation plan, which is common in pre-revenue technology companies.
PCB sector roll-out programme on track
In August Nano Dimension delivered the first DragonFly 2020 system for creating multilayer printed circuit boards to a leading defence company in Israeli for evaluation. Less than a month later, it delivered the first DragonFly to the US. This system is being used by FATHOM, Nano Dimension’s partner, to support demonstrations and product evaluations in the US, especially to potential customers in Silicon Valley and the greater West Coast area. Initial feedback from both beta sites appears to be positive, with the main comments being requests for additional functions in the software provided with the printers; these are to be expected. The first version of the Switch software was released in July 2016. It is not possible to anticipate all the functionality requirements until customers start to use the software themselves. This highlights why Nano Dimension is keen to have an extended beta test phase with customers that will provide detailed feedback. This will enable it to refine both the software and the printer so that they are suitable for volume deployment.
Following the initial feedback from the two beta sites, management has confirmed that the roll-out programme is on track, with a further four printers scheduled for delivery to beta site customers by the end of FY16, 50 for FY17, of which around 35 will be for the commercial roll-out during H217. These volumes will be scaled up further during FY18. As the first printers for beta site delivery have become available, management has intensified discussions with potential beta site customers. As a result, it has decided it is better to adopt a leasing model during this phase than a straight sales model. This means that revenues will not be recognised up-front, affecting the top-line P&L, but enables Nano Dimension to select beta site partners on the basis of their ability to provide useful feedback and ultimately, to become long-term customers. The cash raised from the recent open offer and exercise of over-allotment option enables management to pursue this route.
Nano Dimension is using some of the funds raised to expand the ink production facility so that it can provide the quantity needed once it enters the commercial phase and the volumes of printers being sold ramps up. It has leased another floor in its existing facility in Ness Ziona near Tel Aviv to accommodate ink production. Management expects the new facility, which will cost an estimated $1.5m, to be opened Q217. We model most of the cost of this as falling in FY17.
Progress in other sectors
Although Nano Dimension is highly focused on completing the beta test for the PCB (printed circuit board) printer and software, it has made significant progress in developing 3D print systems for other sectors. During Q3 it conducted a successful test for 3D printing of conductive traces on to fabric to create smart textiles and filed a patent for a higher conductivity ink, potentially accelerating print speeds and reducing the quantities of ink required. Following the successful demonstration of 3D printing human tissue and organs during Q216, management has confirmed that it will form a separate subsidiary to commercialise this opportunity.
Financials
Changes to estimates
We update our estimates from those shown in the October edition of Edison Insight to reflect that, although the roll-out schedule for DragonFly printers is on track, management now expects to adopt a leasing model during the beta testing phase. We also make changes to recognise share-based payments (US$1.8m non-cash charge recognised in the first nine months of FY16) and a probable change in the way in which R&D costs are treated. Our previous estimates assumed that a material proportion of R&D costs would be capitalised in FY16, FY17 and FY18. Based on the company’s guidance, our revised treatment assumes that 71% of R&D costs will be capitalised in FY16, while all R&D costs will be expensed in both FY17 and FY18.
Exhibit 1: Changes to estimates
Revenues (US$m) |
EBITDA (US$m) |
Adjusted PBT (US$m) |
Adjusted EPADS (US$) |
|||||||||
Old* |
New |
% change |
Old* |
New |
% change |
Old* |
New |
% change |
Old* |
New |
% change |
|
2015 |
0.0 |
0.0 |
N/A |
(5.7) |
(2.4) |
-58 |
(5.4) |
(2.1) |
-61 |
(1.00) |
(0.39) |
-61 |
2016e |
0.2 |
0.0 |
-100 |
(5.4) |
(4.9) |
-9 |
(5.6) |
(5.0) |
-11 |
(0.67) |
(0.60) |
-10 |
2017e |
6.5 |
5.2 |
-20 |
(3.8) |
(8.6) |
+126 |
(4.0) |
(8.8) |
+120 |
(0.41) |
(0.89) |
+117 |
2018e |
35.7 |
35.7 |
N/A |
14.4 |
11.3 |
-22 |
14.1 |
11.0 |
-22 |
1.20 |
0.93 |
-23 |
Source: Edison Investment Research. Note: *Estimates as shown in October edition of Edison Insight, which includes impact of open offer and over-allocation of options.
Increased investment in R&D
Operating losses reduced by 1% sequentially during Q316 to US$1.7m (28% increase y-o-y). The number of people engaged in R&D rose from 57 at the end of June to 67 at the end of September. This was offset by a reduction in the cost of professional services and other general expenses.
Placing to fund commercialisation phase
Nano Dimension raised US$12.0m (gross) during Q3 through a placing and a further $1.8m (gross) through an over-allotment option during early Q416, both at US$6.50/ADS. The funds will be used to support the ramp-up in volume, including a c US$1.5m investment in expanding the ink production capability. Management expects this to be in place during Q217, ahead of the start of volume sales in H217. According to management, cash burn is currently around $1m/month. Our model shows Nano Dimension has sufficient cash to support it through the commercialisation phase of the 3D print system for PCBs provided it achieves the roll-out rate and pricing assumed in our estimates (see our September note for details). We note that management intends to establish a separate entity for commercialising 3D print of biological tissues. This will be financed separately from the PCB programme.
Valuation
We update our indicative valuation to reflect the shift to a leasing model during the beta phase. This analysis excludes any additional potential contribution from third-party ink sales or early stage development programmes. Further progress against major milestones should act as a catalyst to push the share price beyond the current level towards our indicative value of NIS9.87/ordinary share, US$12.97/ADS (NIS9.93/ordinary share, US$12.86/ADS prior to the fund-raising).
Exhibit 2: Edison DCF analysis
US$m/ADS |
Base case |
NIS/ordinary share |
Base case |
||||||
Discount rate |
Discount rate |
||||||||
11.0% |
13.0% |
15.0% |
11.0% |
13.0% |
15.0% |
||||
Terminal Growth |
0.0% |
14.62 |
11.80 |
9.78 |
0.0% |
11.13 |
8.98 |
7.44 |
|
1.0% |
15.50 |
12.34 |
10.13 |
1.0% |
11.80 |
9.39 |
7.71 |
||
2.0% |
16.58 |
12.97 |
10.53 |
2.0% |
12.62 |
9.87 |
8.01 |
||
3.0% |
17.92 |
13.74 |
10.99 |
3.0% |
13.64 |
10.45 |
8.37 |
||
4.0% |
19.65 |
14.67 |
11.55 |
4.0% |
14.95 |
11.16 |
8.79 |
||
Source: Edison Investment Research
Exhibit 3: Financial summary
US$000 |
2015* |
2016e |
2017e |
2018e |
||
Year-end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
0 |
36 |
5,160 |
35,680 |
Cost of Sales (including amortisation of capitalised IP) |
0 |
(9) |
(2,728) |
(12,764) |
||
Gross Profit |
0 |
27 |
2,432 |
22,916 |
||
EBITDA |
|
|
(2,437) |
(4,873) |
(8,636) |
11,329 |
Operating Profit (before amort. and except.) |
(2,473) |
(4,986) |
(8,797) |
11,016 |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Other |
(3,262) |
(2,000) |
(2,000) |
(2,000) |
||
Operating Profit |
(5,735) |
(6,986) |
(10,797) |
9,016 |
||
Net Interest |
355 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(2,118) |
(4,986) |
(8,797) |
11,016** |
Profit Before Tax (FRS 3) |
|
|
(5,380) |
(6,986) |
(10,797) |
9,016 |
Tax |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(2,118) |
(4,986) |
(8,797) |
9,254 |
||
Profit After Tax (FRS 3) |
(5,380) |
(6,986) |
(10,797) |
9,016 |
||
Average Number of Shares Outstanding (m) |
5.4 |
8.3 |
9.9 |
9.9 |
||
EPADS - normalised ($) |
|
|
(0.39) |
(0.60) |
(0.89) |
0.93** |
EPADS - normalised fully diluted ($) |
|
|
(0.39) |
(0.60) |
(0.89) |
0.69** |
EPADS - (IFRS) ($) |
|
|
(1.00) |
(0.84) |
(1.09) |
0.91 |
DPADS ($) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
N/A |
74.0 |
47.1 |
64.2 |
||
EBITDA Margin (%) |
N/A |
N/A |
N/A |
31.8 |
||
Operating Margin (before GW and except.) (%) |
N/A |
N/A |
N/A |
30.9 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
4,151 |
10,372 |
10,653 |
9,681 |
Intangible Assets |
2,910 |
8,653 |
7,417 |
6,357 |
||
Tangible Assets |
1,131 |
1,609 |
3,126 |
3,214 |
||
Restricted deposits |
110 |
110 |
110 |
110 |
||
Current Assets |
|
|
9,057 |
12,918 |
4,374 |
21,942 |
Stocks |
0 |
100 |
350 |
1,350 |
||
Debtors |
264 |
314 |
1,064 |
6,644 |
||
Cash |
8,665 |
12,376 |
2,832 |
13,820 |
||
Restricted deposits |
128 |
128 |
128 |
128 |
||
Current Liabilities |
|
|
(907) |
(1,707) |
(2,457) |
(8,037) |
Creditors |
(907) |
(1,707) |
(2,457) |
(8,037) |
||
Short-term borrowings |
0 |
0 |
0 |
0 |
||
Long-Term Liabilities |
|
|
(254) |
(330) |
(363) |
(182) |
Long-term borrowings |
0 |
0 |
0 |
0 |
||
Liability in respect of government grants |
(254) |
(330) |
(363) |
(182) |
||
Net Assets |
|
|
12,047 |
21,252 |
12,207 |
23,404 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(3,330) |
(3,923) |
(7,650) |
11,388 |
Net Interest |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
||
Investment in intangible & tangible assets |
(2,344) |
(6,343) |
(1,894) |
(400) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
||
Financing |
14,362 |
13,977 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
8,688 |
3,711 |
(9,544) |
10,988 |
||
Opening net debt/(cash) |
|
|
(207) |
(8,665) |
(12,376) |
(2,832) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
(230) |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(8,665) |
(12,376) |
(2,832) |
(13,820) |
Source: Edison Investment Research. Note: *Translated from NIS. **Normalised for tax.
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