Last close As at 05/08/2026
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Market capitalisation
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Although Nanoco’s major US client will not progress to volume production in the foreseeable future, commissioning work continues on the new production capacity, which is scheduled to complete by December. Once that is completed, the facility will be able to produce high-quality infra-red nanomaterials for use in a number of electronics applications. It could therefore be used to service future demand from the US customer or potential new customers in the electronics or display industries with which Nanoco is in the early stages of discussion. The current market capitalisation appears to assign little value to these assets at a time when there appears to be renewed market interest in quantum dots.
Written by
Nanoco Group |
Pursuing new sources of commercial income |
FY19 results |
Tech hardware & equipment |
16 October 2019 |
Share price performance
Business description
Next events
Analysts
Nanoco Group is a research client of Edison Investment Research Limited |
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Although Nanoco’s major US client will not progress to volume production in the foreseeable future, commissioning work continues on the new production capacity, which is scheduled to complete by December. Once that is completed, the facility will be able to produce high-quality infra-red nanomaterials for use in a number of electronics applications. It could therefore be used to service future demand from the US customer or potential new customers in the electronics or display industries with which Nanoco is in the early stages of discussion. The current market capitalisation appears to assign little value to these assets at a time when there appears to be renewed market interest in quantum dots.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
EV/sales |
P/E |
07/17 |
1.3 |
(10.6) |
(4.5) |
0.0 |
17.1 |
N/A |
07/18 |
3.3 |
(7.1) |
(2.6) |
0.0 |
6.7 |
N/A |
07/19 |
7.1 |
(5.0) |
(1.8) |
0.0 |
3.1 |
N/A |
07/20e |
3.5 |
(6.7) |
(2.4) |
0.0 |
6.3 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
FY19 performance reflects work for US customer
As flagged in the post-close trading update, Nanoco generated £7.1m revenues in FY19. This was more than double FY18’s level and slightly ahead of consensus because of the early delivery of some revenue under the major services contract. FY19 billings totalled £9.6m, including £2.4m as the final sum payable to complete the new Runcorn production facility. Operating losses, adjusted for exceptionals and share-based payments, narrowed from £7.2m to £5.0m. Cash at end FY19 was £7.0m, an increase of £0.8m since end January 2019.
FY20 estimates underpinned by contracts
Our FY20 revenue estimate is backed by contracts, primarily from the major US partner, and has been revised downwards to reflect some revenues moving forward into FY19 (see Exhibit 1). With a fixed cash cost base of c £9m, management expects cash balances to be c £6m at end December 2019. On this basis, we estimate that current cash balances will last until summer next year, giving the company headroom to explore commercial and strategic options. We will release FY21 estimates when there is more visibility regarding execution.
Valuation: Share price fall does not reflect IP value
The share price is one-third of the level before the major US customer announced it would not continue when the current contract expires in December 2019. However, development activity in quantum dots appears to be accelerating across a number of applications and Nanoco is the largest IP holder in this field with c 750 patents. Moreover, it has a new, nearly fully commissioned manufacturing facility able to output significant volumes of nanomaterials. We believe that the current market capitalisation of £29m ascribes little value to this IP and asset base.
Changes to estimates
We revise our FY20 estimates to reflect:
■
Early delivery of revenues under the major US contract.
■
Q419 reorganisation, which management estimates will deliver £0.6m in cost savings in FY20.
■
Reduced depreciation because of impairment in the value of the facility developed for the major US customer.
Exhibit 1: Revisions to estimates
Year end July |
FY19 |
FY20e |
||||
£m |
Actual |
Est. |
Est. vs actual |
New |
Old |
% change |
Revenues |
7.1 |
6.7 |
-6.7% |
3.5 |
4.0 |
-12.5% |
Gross profit |
6.5 |
4.9 |
-31.7% |
3.1 |
3.1 |
-0.8% |
EBITDA |
(3.8) |
(4.2) |
9.0% |
(6.0) |
(6.5) |
-6.9% |
Normalised operating profit |
(5.0) |
(5.1) |
1.6% |
(7.0) |
(8.1) |
-12.7% |
Normalised net income |
(5.0) |
(4.8) |
-5.0% |
(6.7) |
(7.8) |
-13.2% |
Normalised diluted EPS (p) |
(1.8) |
(1.7) |
-4.9% |
(2.4) |
(2.7) |
-13.2% |
Net debt/(cash) |
(7.0) |
(5.6) |
-25.3% |
(0.2) |
(0.5) |
-60.5% |
Source: Nanoco Group data, Edison Investment Research
Valuation
As a reference point for the potential value of the assets, which include c 750 granted and pending patents as well as the fabrication facilities for quantum dots and sensor materials, we note that Samsung acquired the IP of quantum dot competitor QD Vision (with a reported 250 patents) for $70m in 2016. Prior to the acquisition, QD Vision had been struggling with its products not gaining acceptance. We believe that Nanoco’s current market capitalisation of £29m takes little recognition of the company’s IP and asset base.
Exhibit 2: Financial summary
£m |
2017 |
2018 |
2019 |
2020e |
||
Year end 31 July |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
1.3 |
3.3 |
7.1 |
3.5 |
Cost of Sales |
(0.3) |
(0.4) |
(0.7) |
(0.4) |
||
Gross Profit |
1.1 |
2.9 |
6.5 |
3.1 |
||
EBITDA |
|
|
(9.4) |
(6.2) |
(3.8) |
(6.0) |
Operating profit (before amort. and except). |
|
(10.7) |
(7.2) |
(5.0) |
(7.0) |
|
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(0.0) |
0.0 |
(0.3) |
0.0 |
||
Share-based payments |
(0.2) |
(0.3) |
(0.2) |
(0.3) |
||
Reported operating profit |
(10.9) |
(7.4) |
(5.5) |
(7.3) |
||
Net Interest |
0.0 |
0.0 |
(0.0) |
0.3 |
||
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) |
|
|
(10.6) |
(7.1) |
(5.0) |
(6.7) |
Profit Before Tax (reported) |
|
|
(10.9) |
(7.4) |
(5.5) |
(7.0) |
Reported tax |
1.8 |
1.4 |
1.2 |
1.2 |
||
Profit After Tax (norm) |
(10.6) |
(7.1) |
(5.0) |
(6.7) |
||
Profit After Tax (reported) |
(9.1) |
(6.0) |
(4.4) |
(5.8) |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(10.6) |
(7.1) |
(5.0) |
(6.7) |
||
Net income (reported) |
(9.1) |
(6.0) |
(4.4) |
(5.8) |
||
Average Number of Shares Outstanding (m) |
238 |
272 |
286 |
286 |
||
EPS - normalised (p) |
|
|
(4.46) |
(2.63) |
(1.75) |
(2.36) |
EPS - diluted normalised (p) |
|
|
(4.46) |
(2.63) |
(1.75) |
(2.36) |
EPS - basic reported (p) |
|
|
(3.83) |
(2.21) |
(1.52) |
(2.03) |
Dividend per share (p) |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
179.7 |
150.0 |
114.9 |
0.0 |
||
Gross Margin (%) |
80.6 |
87.0 |
90.7 |
88.6 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
3.5 |
6.0 |
4.6 |
6.4 |
Intangible Assets |
2.6 |
3.4 |
3.9 |
3.4 |
||
Tangible Assets |
0.9 |
2.6 |
0.7 |
3.0 |
||
Investments & other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
8.9 |
13.8 |
9.5 |
1.6 |
Stocks |
0.2 |
0.2 |
0.2 |
0.0 |
||
Debtors |
0.7 |
1.4 |
1.1 |
0.2 |
||
Cash & cash equivalents |
5.7 |
10.7 |
7.0 |
0.2 |
||
Other |
2.4 |
1.4 |
1.1 |
1.1 |
||
Current Liabilities |
|
|
(1.4) |
(3.4) |
(4.8) |
(3.7) |
Creditors |
(1.3) |
(3.0) |
(2.3) |
(1.2) |
||
Tax and social security |
0.0 |
0.0 |
0.0 |
0.0 |
||
Short term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(0.1) |
(0.4) |
(2.5) |
(2.5) |
||
Long Term Liabilities |
|
|
(0.6) |
(3.7) |
(0.8) |
(0.4) |
Long term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other long term liabilities |
(0.6) |
(3.7) |
(0.8) |
(0.4) |
||
Net Assets |
|
|
10.5 |
12.6 |
8.5 |
3.8 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders’ equity |
|
|
10.5 |
12.6 |
8.5 |
3.8 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
(9.4) |
(6.2) |
(3.8) |
(6.0) |
||
Working capital |
(0.3) |
4.0 |
1.8 |
(0.4) |
||
Exceptional & other |
(0.0) |
0.0 |
0.0 |
0.0 |
||
Tax |
1.9 |
1.8 |
1.4 |
1.4 |
||
Net operating cash flow |
|
|
(7.8) |
(0.3) |
(0.6) |
(5.0) |
Capex |
(1.6) |
(3.0) |
(3.1) |
(2.0) |
||
Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net interest |
0.1 |
0.0 |
(0.0) |
0.3 |
||
Equity financing |
0.6 |
7.9 |
0.0 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net Cash Flow |
(8.8) |
4.6 |
(3.7) |
(6.8) |
||
Opening net debt/(cash) |
|
|
(14.5) |
(5.7) |
(10.7) |
(7.0) |
FX |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
0.3 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(5.7) |
(10.7) |
(7.0) |
(0.2) |
Source: Nanoco Group accounts, Edison Investment Research
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