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Research: TMT
Nanoco’s post-close trading update notes that the FY22 performance was broadly in line with management’s expectations. We therefore leave our estimates unchanged except for adjustments relating to the broker option element of the fund-raising programme in June, which was very significantly oversubscribed, and charges linked to the loan notes issued in July 2021.
Nanoco Group |
Reaching two key milestones in H222 |
Trading update |
Tech hardware and equipment |
18 August 2022 |
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 post-close trading update notes that the FY22 performance was broadly in line with management’s expectations. We therefore leave our estimates unchanged except for adjustments relating to the broker option element of the fund-raising programme in June, which was very significantly oversubscribed, and charges linked to the loan notes issued in July 2021.
Year end |
Revenue |
EBITDA |
PBT* |
EPS |
DPS |
P/E |
07/20 |
3.9 |
(2.9) |
(4.9) |
(1.39) |
0.00 |
N/A |
07/21 |
2.1 |
(2.9) |
(4.7) |
(1.30) |
0.00 |
N/A |
07/22e |
2.4 |
(2.6) |
(4.4) |
(1.23) |
0.00 |
N/A |
07/23e** |
2.4 |
(2.7) |
(4.1) |
(1.10) |
0.00 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Excluding potential production orders
FY22 trading broadly in line with expectations
Management notes that FY22 revenues will be £2.4m, in line with our estimates, and that adjusted LBITDA will be slightly ahead of their expectations because of successful cost management. There was £6.8m cash (excluding lease liabilities and financial liabilities) at the year end. This represented a £5.0m improvement during H222, the result of good cash management and £5.4m (net) from the June fund-raising. This gives a cash runway into CY25, which is beyond the point Nanoco expects organic activities to be self-financing.
Reaching two key milestones in H222
During H222, Nanoco signed an agreement for a fifth work package from its major European customer, which we have previously inferred is ST Microelectronics (ST). The package covers the final phase of a scale-up of a longer wavelength material and development of a third material. It extends for one year commencing May 2022. In May the US Patent Trial and Appeal Board (PTAB) determined in favour of Nanoco in respect of all 47 claims in the five patents. The court hearing, which will focus on infringement and damages, is set to start on 12 September 2022 and to last for one week. We note that a judge has recently rejected Samsung’s motion to change the definition of a technical term in the case, in effect upholding the decision made in the Markman hearing in March 2021.
Valuation: Dependent on patent litigation outcome
Ahead of the programme with ST definitely moving to commercial production, we believe that much of Nanoco’s value still lies in a satisfactory resolution of the patent infringement dispute with Samsung, an event which we believe is much more likely given the positive verdict from the PTAB in May. Although the value of a potential payout has not been disclosed, we calculate that lost revenue in the US attributable to the patent infringement to date could be in the region of US$200–250m or more. Any damages awarded could also make an additional allowance for future sales of infringing TVs and a possible uplift for wilfulness.
Changes to estimates
The fund-raising programme in June consisted of a placing, subscription and broker option. Our previous estimates modelled the funds raised and new shares issued from the placing and subscription but not from the broker option because the results of this had not been announced at the time. We now adjust our FY22 and FY23 estimates to include the funds raised and shares issued from the broker option, which was significantly oversubscribed.
Although the company’s trading update notes that FY22 adjusted LBITDA was slightly reduced compared to the Board’s expectations, reflecting good management of the cost base, we have not changed our FY22 LBITDA estimate.
We are not making any changes to our FY23 estimates at present, other than increasing financial charges by £0.4m to £0.5m to reflect charges associated with the loan notes issued in July 2021. Our FY23 estimates do not model any potential revenues associated with a ramp-up in volume production for ST. We will review this when the FY22 results are announced in October when there should be better visibility of ST’s requirements.
We make a minor adjustment to our FY22 cash-flow estimate to bring cash (gross) in line with the £6.8m noted by management.
Exhibit 1: Estimate revisions
Y/E July |
FY21 |
FY22 |
FY23 |
||||
£'m |
Actual |
New |
Old |
% change |
New |
Old |
% change |
Revenues |
2.1 |
2.4 |
2.4 |
0.0% |
2.4 |
2.4 |
0.0% |
Gross profit |
1.9 |
2.2 |
2.2 |
0.0% |
2.2 |
2.2 |
0.0% |
EBITDA |
(2.9) |
(2.6) |
(2.6) |
0.0% |
(2.7) |
(2.7) |
0.0% |
Normalised PBT |
(4.7) |
(4.4) |
(4.4) |
0.0% |
(4.1) |
(3.7) |
10.7% |
Normalised net income |
(4.0) |
(3.8) |
(3.8) |
0.0% |
(3.5) |
(3.1) |
12.8% |
Normalised diluted EPS (p) |
(1.3) |
(1.2) |
(1.2) |
-0.2% |
(1.1) |
(1.0) |
9.6% |
Net debt/(cash) |
(0.3) |
(3.3) |
(0.3) |
1216.1% |
(1.0) |
2.3 |
N/A |
Source: Company accounts, Edison Investment Research
Exhibit 2: Financial summary
£'m |
2019 |
2020 |
2021 |
2022e |
2023e |
||
31-July |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
restated |
restated |
|||||
Revenue |
|
|
7.1 |
3.9 |
2.1 |
2.4 |
2.4 |
Cost of Sales |
(0.7) |
(0.3) |
(0.2) |
(0.2) |
(0.2) |
||
Gross Profit |
6.5 |
3.5 |
1.9 |
2.2 |
2.2 |
||
EBITDA |
|
|
(3.8) |
(2.9) |
(2.9) |
(2.6) |
(2.7) |
Operating profit (before amort. and excepts.) |
|
(5.0) |
(4.8) |
(4.6) |
(3.9) |
(3.6) |
|
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(0.3) |
(0.7) |
0.0 |
0.0 |
0.0 |
||
Share-based payments |
(0.2) |
(0.4) |
(0.4) |
(0.7) |
(0.7) |
||
Reported operating profit |
(5.5) |
(5.9) |
(5.0) |
(4.6) |
(4.3) |
||
Net Interest |
(0.0) |
(0.1) |
(0.1) |
(0.5) |
(0.5) |
||
Profit Before Tax (norm) |
|
|
(5.0) |
(4.9) |
(4.7) |
(4.4) |
(4.1) |
Profit Before Tax (reported) |
|
|
(5.5) |
(6.0) |
(5.1) |
(5.1) |
(4.8) |
Reported tax |
1.2 |
0.9 |
0.7 |
0.6 |
0.6 |
||
Profit After Tax (norm) |
(3.9) |
(4.0) |
(4.0) |
(3.8) |
(3.5) |
||
Profit After Tax (reported) |
(4.4) |
(5.1) |
(4.4) |
(4.5) |
(4.2) |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(3.9) |
(4.0) |
(4.0) |
(3.8) |
(3.5) |
||
Net income (reported) |
(4.4) |
(5.1) |
(4.4) |
(4.5) |
(4.2) |
||
Average Number of Shares Outstanding (m) |
286 |
287 |
306 |
308 |
322 |
||
EPS - normalised (p) |
|
|
(1.34) |
(1.39) |
(1.30) |
(1.23) |
(1.10) |
EPS - normalised fully diluted (p) |
|
|
(1.34) |
(1.39) |
(1.30) |
(1.23) |
(1.10) |
EPS - basic reported (p) |
|
|
(1.52) |
(1.77) |
(1.44) |
(1.46) |
(1.31) |
Dividend per share (p) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
5.6 |
4.6 |
3.4 |
3.0 |
2.5 |
Intangible Assets |
3.9 |
3.7 |
2.9 |
2.6 |
2.4 |
||
Tangible Assets |
1.7 |
0.9 |
0.5 |
0.4 |
0.1 |
||
Investments & other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
9.5 |
7.2 |
5.8 |
8.6 |
6.0 |
Stocks |
0.2 |
0.1 |
0.1 |
0.1 |
0.1 |
||
Debtors |
1.1 |
1.0 |
1.2 |
1.0 |
0.7 |
||
Cash & cash equivalents |
7.0 |
5.2 |
3.8 |
6.8 |
4.5 |
||
Other |
1.1 |
0.9 |
0.7 |
0.7 |
0.7 |
||
Current Liabilities |
|
|
(5.0) |
(3.6) |
(2.4) |
(2.2) |
(2.2) |
Creditors |
(2.6) |
(2.3) |
(1.6) |
(1.5) |
(1.5) |
||
Tax and social security |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Short term financial leases |
(0.7) |
(0.6) |
(0.5) |
(0.5) |
(0.5) |
||
Short term bank debt |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(1.6) |
(0.6) |
(0.3) |
(0.3) |
(0.3) |
||
Long Term Liabilities |
|
|
(1.8) |
(1.3) |
(3.8) |
(4.3) |
(4.3) |
Long term financial leases |
(1.0) |
(0.5) |
(0.1) |
(0.6) |
(0.6) |
||
Loan notes |
(0.4) |
(0.5) |
(3.5) |
(3.5) |
(3.5) |
||
Other long term liabilities |
(0.4) |
(0.2) |
(0.1) |
(0.1) |
(0.1) |
||
Net Assets |
|
|
8.3 |
7.0 |
3.1 |
5.1 |
2.0 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
8.3 |
7.0 |
3.1 |
5.1 |
2.0 |
CASH FLOW |
|||||||
Operating Cash Flow |
(3.8) |
(3.0) |
(2.8) |
(2.6) |
(2.7) |
||
Working capital |
1.8 |
(1.4) |
(1.4) |
0.0 |
0.3 |
||
Exceptional & other |
(0.0) |
(0.8) |
(0.1) |
0.0 |
0.0 |
||
Tax |
1.4 |
1.1 |
0.9 |
0.7 |
0.7 |
||
Net Operating Cash Flow |
|
|
(0.6) |
(4.1) |
(3.5) |
(1.8) |
(1.7) |
Capex |
(3.1) |
(0.7) |
(0.3) |
(0.4) |
(0.4) |
||
Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net interest |
0.0 |
0.0 |
(0.0) |
(0.1) |
(0.1) |
||
Equity financing |
0.0 |
3.2 |
0.0 |
5.4 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.0 |
(0.8) |
2.3 |
0.0 |
0.0 |
||
Net Cash Flow |
(3.7) |
(2.4) |
(1.5) |
3.1 |
(2.2) |
||
Opening net debt/(cash) |
|
|
(10.3) |
(6.6) |
(4.7) |
(0.3) |
(3.3) |
FX |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
0.6 |
(3.0) |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(6.6) |
(4.7) |
(0.3) |
(3.3) |
(1.0) |
Source: Company accounts, Edison Investment Research
|
|
Research: Financials
ProCredit Holding (PCB) continues to incur high loss allowances in Ukraine, booking €21.2m in Q222 versus €35.3m in Q122. However, ProCredit Bank Ukraine’s operations are mostly uninterrupted, with its CET-1 ratio 4pp above the regulatory requirement at end-June 2022. PCB’s operations outside Ukraine benefitted from solid loan book growth and a higher net interest margin (NIM), which coupled with a marginal cost of risk translated into an annualised return on equity (ROE) of 9.5% in H122 (close to the mid-term target of 10%). PCB’s shares trade at c 0.23x FY22e book value (P/BV).
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