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Nexstim — Update 29 September 2016

Nexstim — Update 29 September 2016

Nexstim

Analyst avatar placeholder

Written by

Nexstim

More data please

FDA response

Healthcare equipment & services

29 September 2016

Price

€0.39

Market cap

€4m

Cash (€m) as at 30 June 2016

1.8

Shares in issue

10.55m

Free float

69%

Codes

NXTMH, NXTMS

Primary exchange

Nasdaq First North Finland

Secondary exchange

Nasdaq First North Sweden

Share price performance

%

1m

3m

12m

Abs

(41.2)

(42.1)

(94)

Rel (local)

(41.7)

(49.9)

(94.6)

52-week high/low

€7.5

€0.4

Business description

Nexstim sells navigated brain stimulation to plan brain surgery; the system is sold in the US and EU. The therapeutic stimulation system may promote rehabilitation after stroke. The FDA requires further data and a small additional trial to support a de novo application following the Phase III result.

Next events

Loans and shares

Ongoing

FY16 results

March 2017

Analyst

John Savin PhD

+44 (0)20 3077 5735

Nexstim is a research client of Edison Investment Research Limited

The FDA has told Nexstim it may accept a “limited-sized” further trial plus additional analysis of the Phase III (NICHE) study. While this is positive for Nexstim – the FDA did not reject the application – it delays any approval to at least 2019. The new design is unlikely to be confirmed before H117. In our view, the uncertainty decreases the probability of success from 55% to 50%. Including the likely 2016 dilution, this decreases the indicative value from €0.96/share to €0.58/share. Nexstim should be funded until early 2018 on the current arrangements with Bracknor, but will then require further capital.

Year
end

Revenue
(€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/14

2.2

(10.2)

(1.4)

0.0

N/A

N/A

12/15

2.5

(9.6)

(1.2)

0.0

N/A

N/A

12/16e

2.1

(8.3)

(0.9)

0.0

N/A

N/A

12/17e

2.6

(5.4)

(0.4)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. EPS is estimated after 2016 dilution only.

FDA de novo stroke application: Maybe, but not yet

Nexstim has showing meaningful clinical improvements in 66% of patients in both arms. The FDA regarded the Phase III data from the NICHE upper extremity stroke rehabilitation study compared to historic norms as insufficient for a de novo 510(k) review. It requires a further trial using a different sham procedure to the “active” sham used in NICHE. Nexstim has successfully argued that this next trial can be limited in size if it provides comparisons between published studies, expert opinions and the NICHE trial results. The FDA will confirm that the proposed limited study design is adequate. In Nexstim’s view, this could be agreed by H117. The NICHE study used a six-month follow-up. If this is the case and the trial recruitment can complete in H217, Nexstim might have the data by Q318. This could enable a de novo 510(k) review in 2019 and possible launch in 2020. The Edison model assumes a US launch in 2021, which is unchanged.

Funding drawdown underway

Nexstim has convertible loan facility and standby equity drawdown arrangements with Bracknor Investment worth €10m if fully used. The Finnish Innovation Fund (Sitra) has agreed to match this funding up to €2.0m. There are warrants to Bracknor and Sitra. In September (to date), Bracknor has converted €120,000 of convertible loans into 319,712 shares at between €0.39 and €0.36 per share.

Valuation: US probability adjusted from 55% to 50%

Navigated Brain Stimulation (NBS) is sold for pre-surgical brain mapping in the US and EU, but the market is limited. We published a revised forecast on 1 September with an indicative diluted value of €0.96/share using an expected US approval probability of 55%. Although there is a clearer route to US approval, the risk associated with it has increased so a probability of success of 50% now seems more appropriate. This implies an indicative share price of €0.58/share after the actual dilution to date and potential further 2016 dilution. We expect about €5m cash will be required in 2017 with further funding needed in 2018.

Valuation

The effect of the revised probability adjustment from 55% to 50% is to reduce the probability-adjusted long-term cash flow. This is because the US market is so critical to Nexstim’s success. No other changes have been made to the model. This would have altered the indicative price per share from €0.96 to €0.69/share if the dilution from the Bracknor deal was a constant. However, as the share price has declined to €0.40, the likely 2016 dilution has increased (Exhibit 1). This is because shares are issued to Bracknor at an 85% discount so more shares are issued as loan tranches convert. The likely amount in 2016 can be estimated, Exhibit 1, and will be updated and adjusted as amounts are announced. However, dilution is not predictable in 2017. On this basis, the 2016 diluted value is now €0.58/share.

The funding arrangements were covered in detail in the July 2016 note, available online. Exhibit 2 shows shares and warrants issued to Bracknor and Sitra to date. Nexstim issued treasury shares in July and Bracknor has been issued treasury shares for the three conversions to date.

Exhibit 1: Revised Indicative value based on 2016 dilution scenario

 

Shares

Values

Equity value 2016 on a 50% US probability(€m)

17.40

Additional funding need 2017 (€m)

-5.0

Overall value including further funding need (€m)

12.39

Shares in issue September 2016 (m) (inc treasury shares)

10.53

Potential further CBF shares to be issued (less treasury)

6.27

Warrants issued in August in regard to funding

0.76

Potential further warrants to end 2016/Q117

2.30

Options (m) (inc 700k new options from May 2016)

1.5

Total shares, options and warrants

21.3

Diluted value at current share price (€)

0.58

Source: Edison Investment Research. Note: CBF is convertible bond facility. There is also a standby equity drawdown arrangement but this is not assumed to be used in 2016, see previous note.

Exhibit 2: Share movements since 21 July

Date

Who

Event

Shares issued

Price (€/share)

Warrants

21 July

Nexstim

Issued to Treasury

901,870

0

18 August

Bracknor

Fees

556,016*

0.64

Sitra

Fees

87,971*

0.64

Bracknor

€250k loan with loan notes issued

378,871

22 August

Sitra

€500k directed equity

719,007

0.70

251,652

22 August

Nexstim

Issued to Treasury

795,431

16 September

Bracknor

Conversion of €20,000 of loan,

51,633*

€0.39

20 September

Bracknor

Conversion of €50,000 of loan

129,083*

€0.39

26 September

Bracknor

Conversion of €50,000 of loan

139,083*

€0.36

Source: Edison Investment Research, Nexstim announcements. Note: *Treasury held shares transferred.

Nexstim issued treasury shares in July and after the EGM. The July treasury shares were then partly used to pay the Bracknor and Sitra fees. The shares issued to Bracknor in September as loans were converted also came from treasury held stock. Current shares in issue including treasury stock are 10.53m being 8.1m in June, two treasury issues and the directed equity issue to Sitra on 22 August. There should be about 733,000 shares remaining in the treasury account; this would cover a further €250k of loan conversions at 85% of the current price. Nexstim will have raised €750k in cash since August 2016 due to these transactions (excluding the €410k in fees paid in shares). We assume a further €1.75m Bracknor drawdown and a matching Sitra €0.5m drawdown over the remainder of 2016 and into Q117. However, the timings are uncertain.

Exhibit 3: Financial summary

€'000s

2014

2015

2016e

2017e

Year end 31 December

FAS

FAS

FAS

FAS

PROFIT & LOSS

Revenue

 

 

2,210

2,528

2,055

2,560

Cost of Sales

(638)

(821)

(683)

(1,162)

Gross Profit

1,572

1,707

1,372

1,398

EBITDA

 

 

(7,422)

(9,984)

(7,702)

(5,152)

Operating Profit (before GW and except)

 

(7,568)

(10,096)

(7,712)

(5,162)

Intangible Amortisation

(231)

(274)

(250)

(250)

Exceptionals

-

-

-

-

Operating Profit

(7,800)

(10,370)

(7,962)

(5,412)

Other

-

-

-

-

Net Interest

(2,646)

544

(610)

(200)

Profit Before Tax (norm)

 

 

(10,214)

(9,552)

(8,322)

(5,362)

Profit Before Tax (FRS 3)

 

 

(10,445)

(9,826)

(8,572)

(5,612)

Tax

-

(1)

-

-

Profit After Tax (norm)

(10,214)

(9,553)

(8,322)

(5,362)

Profit After Tax (FRS 3)

(10,445)

(9,827)

(8,572)

(5,612)

Average Number of Shares Outstanding (m)

7.1

8.0

9.2

13.4

EPS - normalised (c)

 

 

(143)

(119)

(91)

(40)

EPS - FRS 3

 

 

(1.46)

(1.23)

(0.93)

(0.42)

Dividend per share (c)

0.0

0.0

0.0

0.0

Gross Margin (%)

71.1

67.5

66.8

54.6

EBITDA Margin (%)

(335.8)

(394.9)

(374.9)

(201.2)

Operating Margin (before GW and except.) (%)

(342.4)

(399.4)

(375.4)

(201.6)

BALANCE SHEET

Fixed Assets

 

 

979

974

974

974

Intangible Assets

527

631

631

631

Tangible Assets

442

333

333

333

Other

10

10

10

10

Current Assets

 

 

13,014

8,233

2,660

2,164

Stocks

247

421

421

421

Debtors

930

659

360

611

Cash

11,484

6,875

1,602

849

Other

354

277

277

283

Current Liabilities

 

 

(1,928)

(2,417)

(2,516)

(2,732)

Creditors

(1,382)

(1,084)

(1,084)

(1,300)

Short term borrowings

(134)

(384)

(484)

(484)

Short term leases

0

0

0

0

Other

(412)

(948)

(948)

(948)

Long Term Liabilities

 

 

(3,475)

(3,245)

(3,145)

(8,045)

Long term borrowings

(3,405)

(3,197)

(3,097)

(7,997)

Long term leases

0

0

0

0

Other long term liabilities

(71)

(47)

(47)

(47)

Net Assets

 

 

8,590

3,545

(2,027)

(7,639)

CASH FLOW

Operating Cash Flow

 

 

(7,146)

(9,065)

(7,403)

(5,193)

Net Interest

(640)

(544)

(610)

(200)

Tax

0

0

0

0

Capex

(860)

(380)

(260)

(260)

Acquisitions/disposals

0

0

0

0

Financing

18,818

5,280

3,000

0

Dividends

0

0

0

0

Other

300

100

0

4,900

Net Cash Flow

10,473

(4,609)

(5,273)

(753)

Opening net debt/(cash)

 

 

2,529

(7,945)

(3,293)

1,980

HP finance leases initiated

-

-

-

-

Other

0

(43)

-

(4,900)

Closing net debt/(cash)

 

 

(7,945)

(3,293)

1,980

7,633

Source: Edison Investment Research, Nexstim accounts. Note: FAS = Finnish Accounting Standards. Average number of shares and EPS for 2016 and 2017 are estimates based on the share issue scenario in Exhibit 2. The amounts and timings of new issues are uncertain and represented in 2017 by illustrative debt of c €5m.

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Nexstim and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Nexstim and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Ceres Power Holdings — Update 29 September 2016

Ceres Power Holdings

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