Nano Dimension — Scaling up

Nano Dimension (NASDAQ: NNDM)

Last close As at 10/10/2024

USD2.30

−0.04 (−1.71%)

Market capitalisation

USD510m

More on this equity

Research: TMT

Nano Dimension — Scaling up

Nano Dimension has agreed to acquire Markforged, a specialist in additive manufacturing (AM) for metal and advanced composites, for cash of $115m. The deal requires regulatory and Markforged shareholder approval, which, if granted, should allow the deal to close by the end of Q125. The combination of Nano Dimension, Desktop Metal (acquisition process underway) and Markforged had pro forma revenue of $340m in FY23. This deal further broadens the product portfolio with the addition of a new printing technology, strengthens Nano Dimension’s position in metal AM and provides greater scale, which should support the path to profitability for the combined group.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Nano Dimension

Scaling up

Technology

Spotlight – Update

30 September 2024

Price

US$2.53

Market cap

US$548m

Share price graph

Share details

Code

NNDM

Listing

Nasdaq

Shares in issue

216.6m

Net cash at end Q224 (including $11.2m lease liability)

$753.1m

Business description

Nano Dimension offers equipment for additive manufacture of high-performance electronic devices, complex 3D ceramic and metal objects as well as miniature parts requiring a resolution of only one micron. It also offers complementary equipment for automated assembly of electronic devices and PCBs.

Bull

Additive manufacturing enables the creation of more complex parts and is more efficient for smaller-volume production runs.

Balance sheet strength positions the company well to consolidate the sector.

Strategy in place to improve financial performance and reduce cash burn, with gross margins already approaching 50%.

Bear

Currently loss-making.

Distraction of hostile behaviour from major shareholder Murchinson.

Difficult to predict market growth for disruptive technologies.

Analyst

Katherine Thompson

+44 (0)20 3077 5700

Nano Dimension is a research client of Edison Investment Research Limited

Nano Dimension has agreed to acquire Markforged, a specialist in additive manufacturing (AM) for metal and advanced composites, for cash of $115m. The deal requires regulatory and Markforged shareholder approval, which, if granted, should allow the deal to close by the end of Q125. The combination of Nano Dimension, Desktop Metal (acquisition process underway) and Markforged had pro forma revenue of $340m in FY23. This deal further broadens the product portfolio with the addition of a new printing technology, strengthens Nano Dimension’s position in metal AM and provides greater scale, which should support the path to profitability for the combined group.

Historical performance

Year
end

Revenue
(US$m)

Adjusted EBITDA (US$m)

PBT*
(US$m)

PAT*
(US$m)

DPS
($)

P/E
(x)

12/20

3.4

(12.6)

(15.0)

(15.0)

0.00

N/A

12/21

10.5

(38.4)

(44.5)

(44.5)

0.00

N/A

12/22

43.6

(91.3)

(96.4)

(96.4)

0.00

N/A

12/23

56.3

(99.9)

(59.0)

(59.0)

0.00

N/A

Source: Company data. Note: *PBT and PAT are normalised, excluding amortisation of acquired intangibles, exceptionals and share-based payments.

Second acquisition in three months

After announcing the acquisition of Desktop Metal on 3 July, Nano announced on 25 September that it had agreed to acquire Markforged for $115m in cash from existing resources. The addition of both companies will take Nano Dimension from FY23 revenue of $56m to pro forma revenue of $340m. While all three businesses are currently loss-making, the scale of the combined group provides synergies on both a revenue and cost basis that provide a clear path to profitability.

Filling out the product portfolio

Markforged brings expertise in composite materials and metals AM, with c 15,000 systems connected to its Digital Forge platform. It has developed innovative composite materials, including its continuous fibre reinforcement technology, which can provide the strength of metals in polymer-based applications.

Valuation: Well-funded for M&A strategy

On news of the proposed acquisition of Markforged, the share price has rebounded 18% from the $2.15 it was trading at on 23 September. Nano Dimension has gross cash of $765m on the balance sheet, highlighting its ability to consolidate the sector. After the Markforged deal closes, Nano Dimension expects to have gross cash including marketable securities of c $475m, which should support the combined entity to reach profitability. The shares are currently trading at a significant discount (c 34%) to Nano Dimension’s net cash balance plus the current value of its stake in Stratasys ($79m as at 27 September). We believe that as the acquisitions complete, the company reduces cash burn and moves towards profitability, this discount should reduce.

Acquiring Markforged

On 25 September, the company announced it had entered into a definitive agreement with Markforged to acquire all outstanding shares of Markforged for all-cash $5.00 per share.

Terms of the deal

The total consideration payable will be $115m. The $5.00 price represents a 71.8% premium to Markforged’s volume-weighted average price (VWAP) on 24 September and a 67.8% premium to the VWAP for the 90 days up to 24 September. The deal requires approval by Markforged shareholders and regulatory approvals including from the Committee on Foreign Investment in the US (CFIUS). Assuming all approvals are received, the company expects the deal to close in Q125.

Based on the deal value and net cash at the end of Q224, the deal values Markforged on EV/sales multiples of 0.7x FY24e and 0.6x FY25e.

Nano Dimension’s CEO, Yoav Stern, will be the CEO of the combined entity. The Markforged management team will join Nano Dimension, although their roles may change.

Deal rationale

The company sees the following benefits from this acquisition:

Comprehensive product portfolio: already broadened by the proposed acquisition of Desktop Metal, this acquisition will give the combined entity a stronger position in the faster-growing areas of the industrial market.

Leading metals position: as described in more detail below, this deal combined with Desktop Metal’s metals expertise will create a leader in systems for the production of metal applications, with metals AM expected to be the fastest growing segment of the AM market.

Specialty materials: the focus on specialty metal and composite-reinforced materials for high performance applications should provide the opportunity to grow the level of recurring revenues (28% for Desktop Metal, 37% for Markforged).

Gain critical mass to drive profitability: by leveraging organisational scale and Nano Dimension’s strong balance sheet, the combined entity will work towards reaching break-even and then driving profitable growth.

Acquisition creates a leading position in metals

Markforged is a specialist designer and manufacturer of machines for the AM of parts for manufacturing, predominantly in metal but increasingly using its continuous fibre reinforcement (CFR) technology, which can be used in place of metal. It works across a range of verticals, including industrial automation, aerospace, military & defence, automotive, healthcare & medical and research institutions.

Its Digital Forge platform brings together 11 printers and sintering furnaces, materials (28 proprietary metals and composites) and software. It is particularly strong in fused filament fabrication of metal parts. Markforged has an installed base of c 15,000 systems. The image below shows the proposed metal AM portfolio of the combined entity:

Exhibit 1: Metal additive manufacturing portfolio

Source: Nano Dimension

Pro forma revenue of $340m for FY23

The combined entity (Nano Dimension plus Desktop Metal plus Markforged) had pro forma revenue of $340m for FY23, with Markforged generating revenue of $93.8m. Combined EBITDA for FY23 was a loss of $215m (Markforged loss of $45.8m), but all three businesses have cost reduction plans in place, and we would expect further cost synergies once the acquisitions complete. Tracking EBITDA so far this year, the three businesses combined have reduced their EBITDA losses from the levels reported in FY23. Annualising Q224 EBITDA, the total loss has reduced to $161m. The charts below show revenue and EBITDA on a quarterly basis for all three companies from Q123 to Q224.

Exhibit 2: Quarterly revenue

Exhibit 3: Quarterly adjusted EBITDA

Source: Company reports

Source: Company reports

Exhibit 2: Quarterly revenue

Source: Company reports

Exhibit 3: Quarterly adjusted EBITDA

Source: Company reports

We note that Markforged had non-GAAP gross margins of 51.9% in Q224 and 48.6% in FY23, compared to 29.2% and 27.0% for Desktop Metal and 46.6% and 48.4% for Nano Dimension. We estimate that on a pro forma basis, the combined entity had a non-GAAP gross margin of 36.5%. With management initially targeting a non-GAAP gross margin of at least 50% and ultimately closer to 60%, efficiencies in costs of sale should make a material contribution to reaching break-even at the EBITDA level.

In terms of operating cost synergies, management noted that all three companies have facilities in Boston and the plan is for the combined entity’s headquarters to be located there. Removing listing costs for two companies should be an immediate cost saving.

The table below summarises the cash position of each company and the combined pro forma net cash position at the end of Q224. The company estimates that post completion of both deals, it would have gross cash of $475m including marketable securities (ie its stake in Stratasys, which is currently worth $74m).

Exhibit 4: Financial position at end Q224

$m

Cash & cash equivalents

Borrowings

Lease liabilities

Net cash/(debt)

Notes

Nano Dimension

764.8

(0.5)

(11.2)

753.1

Does not include $79m stake in Stratasys

Desktop Metal

46.7

(113.2)

(28.3)

(94.8)

Borrowings mainly convertible bonds due May 2027

Markforged

92.5

0.0

(40.8)

51.7

$19.1m of cash is restricted for use in settlement agreement

Total

903.9

(113.7)

(80.3)

710.0

Source: Company reports

Markforged patent litigation settled

On 23 September, Markforged announced it had settled its IP litigation case with Continuous Composites. Markforged will make an upfront payment of $18m to Continuous Composites in Q424 and three additional instalment payments of $1m in Q425, $2m in Q426 and $4m in Q427. All claims have been dismissed and the parties’ respective patent portfolios have been cross-licensed. The settlement agreement is subject to review by the District Court for Delaware. At the end of Q224, Markforged had $19.1m in restricted cash to cover the initial payment and related costs.

Update on Desktop Metal acquisition

The process to acquire Desktop Metal is ongoing. The Hart-Scott-Rodino waiting period in the US expired without any further investigation by US authorities. The company still requires CFIUS approval in the US, filing under the Investment Canada Act and approval of foreign direct investment regulators in Germany and Italy. The deal also requires Desktop Metal shareholder approval (a majority of voting rights); a special shareholder meeting is scheduled for 2 October for this. Proxy advisor Institutional Shareholder Services (ISS) has recommended that shareholders vote to support the merger agreement.

Subject to these approvals being received, the company expects the deal to close in Q424.

As a reminder, Nano Dimension will pay $5.50 in cash per Desktop Metal share for a total value of $183m. This will be reduced by the following:

Desktop Metal’s transaction costs, up to a maximum of $0.63 per Desktop Metal share.

Desktop Metal’s utilisation of a $20m bridge loan from Nano Dimension. Nano Dimension has offered to provide a bridge loan if closure of the deal extends into 2025. This could reduce the share price by a maximum of $0.80.

Overall, the maximum reduction would result in an offer price of $4.07 per share or $137m in cash. Desktop Metal is currently trading at $4.69 per share.

Both companies have already started working closely together to produce post-merger integration plans, with the intention of enacting them as soon as the deal closes.

The company does not anticipate making further acquisitions of a similar size to Desktop Metal or Markforged in the foreseeable future, but may continue to make small bolt-on acquisitions to fill out its product portfolio.

Exhibit 5: Financial summary

$m

2019

2020

2021

2022

2023

Year-end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

Revenue

 

7.1

3.4

10.5

43.6

56.3

Cost of Sales (including amortisation of capitalised IP)

(5.1)

(2.3)

(9.4)

(29.6)

(30.9)

Gross Profit

2.0

1.1

1.1

14.1

25.5

EBITDA

 

(11.7)

(12.6)

(38.4)

(91.3)

(99.9)

Operating profit (before amort. and excepts.)

 

(14.4)

(15.2)

(48.3)

(98.5)

(106.4)

Intangible Amortisation

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

(145.2)

(40.4)

1.6

Share-based payments

(0.4)

(20.5)

(29.8)

(32.6)

(20.1)

Operating Profit

(14.8)

(35.7)

(223.2)

(171.5)

(124.9)

Net Interest

6.5

0.2

3.8

2.2

47.4

Exceptionals

0.0

(13.0)

13.7

(58.7)

21.9

Profit Before Tax (norm)

 

(7.9)

(15.0)

(44.5)

(96.4)

(59.0)

Profit Before Tax (FRS 3)

 

(8.4)

(48.5)

(205.7)

(228.0)

(55.6)

Tax

0.0

0.0

4.9

(0.3)

(0.1)

Profit After Tax (norm)

(7.9)

(15.0)

(44.5)

(96.4)

(59.0)

Profit After Tax (FRS 3)

(8.4)

(48.5)

(200.8)

(228.3)

(55.7)

Average Number of Shares Outstanding (m)

3.5*

42.9*

247.3

257.8

248.0

EPS - normalised ($)

 

(2.25)

(0.35)

(0.18)

(0.37)

(0.23)

EPS (normalised, fully diluted ($)

 

(2.25)

(0.35)

(0.18)

(0.37)

(0.23)

EPS - (IFRS) ($)

 

(2.38)

(1.13)

(0.81)

(0.88)

(0.22)

Dividend per share ($)

0.00

0.00

0.00

0.00

0.00

Gross margin (%)

28.1%

31.3%

10.7%

32.2%

45.2%

EBITDA margin (%)

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

 

 

 

 

 

Fixed Assets

 

13.0

13.1

78.1

139.1

170.4

Intangible Assets

5.2

4.4

0.0

0.0

2.2

Tangible Assets

7.4

8.3

12.2

22.4

28.8

Deferred tax and other

0.0

0.0

1.0

0.9

0.0

Bank deposits/securities

0.0

0.0

64.4

115.0

138.4

Restricted deposits

0.4

0.4

0.5

0.9

0.9

Current Assets

 

9.9

676.1

1,311.9

1,064.3

894.0

Stocks

3.5

3.3

11.2

19.4

18.4

Debtors

2.4

1.8

9.3

12.8

24.0

Cash

3.9

585.3

853.6

685.4

309.6

Bank deposits

0.0

85.6

437.6

346.7

542.0

Restricted deposits

0.0

0.1

0.1

0.1

0.1

Current Liabilities

 

(4.4)

(6.7)

(32.0)

(37.0)

(34.5)

Creditors

(4.4)

(6.7)

(16.7)

(27.9)

(30.0)

Short-term borrowings

0.0

0.0

0.0

0.0

(4.5)

Other

0.0

0.0

(15.3)

(9.2)

(0.0)

Long-Term Liabilities

 

(6.8)

(15.5)

(13.7)

(16.1)

(14.1)

Long-term borrowings

(2.1)

(2.6)

(4.4)

(13.1)

(9.3)

Other liabilities

(4.7)

(12.8)

(9.3)

(3.0)

(4.7)

Net Assets

 

11.6

667.1

1,344.2

1,150.3

1,015.8

CASH FLOW

 

 

 

 

 

Operating Cash Flow

(11.7)

(12.6)

(38.4)

(91.3)

(99.9)

Working capital

(0.8)

2.9

2.7

(1.2)

(7.3)

Exceptionals and other

(0.2)

(0.0)

(7.0)

0.4

2.0

Tax

0.0

0.0

0.0

0.0

0.0

Net Operating Cash Flow

 

(12.7)

(9.6)

(42.6)

(92.1)

(105.1)

Net Interest

0.0

0.2

3.7

17.5

41.5

Investment in intangible & tangible assets

(0.6)

(1.4)

(9.8)

(9.4)

(10.6)

Acquisitions/disposals

0.0

0.0

(74.6)

(219.5)

(9.3)

Equity financing

14.6

679.0

805.7

0.0

(96.4)

Dividends

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

(1.7)

(1.6)

Net Cash Flow

1.4

668.1

682.4

(305.3)

(181.4)

Opening net debt/(cash)

 

(3.8)

(1.8)

(668.3)

(1,351.2)

(1,018.9)

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

Other

(3.3)

(1.6)

0.4

(15.0)

1.3

Closing net debt/(cash)

 

(1.8)

(668.3)

(1,351.2)

(1,018.9)

(837.7)

Source: Company data. Note: *Adjusted for 1:50 reverse split effective June 2020.


General disclaimer and copyright

This report has been commissioned by Nano Dimension and prepared and issued by Edison, in consideration of a fee payable by Nano Dimension. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

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General disclaimer and copyright

This report has been commissioned by Nano Dimension and prepared and issued by Edison, in consideration of a fee payable by Nano Dimension. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

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This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Research: Metals & Mining

Pan African Resources — Analysing H224 and looking forward to FY25

Pan African Resources’ (PAF’s) FY24 results, announced on 11 September, were within 1% of our prior forecasts for both EPS (4.14c cf 4.17c) and headline EPS (HEPS; 4.15c cf 4.17c). However, if the contract liability related to its ZAR400m financing facility for Mintails is stripped out, we calculate that PAF would have recorded HEPS of 5.27c, which would have been close to the top of the range of analysts’ expectations and also a record for both 12-month and six-month periods. While arguably academic for FY24, this nevertheless sets the stage for more material EPS and cash flow increases in the future as the Mintails contract liability concludes in February 2025 at the same time that opex stabilises and capex begins to fall away.

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