Nanoco — Steps on the pathway to volume production

Nanoco Group (LSE: NANO)

Last close As at 26/02/2024

GBP0.20

−0.35 (−1.76%)

Market capitalisation

GBP65m

More on this equity

Research: TMT

Nanoco — Steps on the pathway to volume production

Nanoco’s trading update confirms that H124 revenues and EBITDA are anticipated to be in line with company expectations. The main new information is that the company has commenced the build and fitout of a new 300m wafer device facility to accelerate product development and test cycles with both existing and new clients. This gives Nanoco scope to grow development revenues in the near term and reduce time to market of new production materials, while aligning the development platform with infrastructure used for high-volume semiconductor manufacture.

Written by

Dan Ridsdale

Head of Technology

TMT

Nanoco Group

Steps on the pathway to volume production

Trading update

Tech hardware and equipment

8 February 2024

Price

20p

Market cap

£64.9m

Net cash (£m) at 31 July 2023

3.6

Shares in issue

324m

Free float

84%

Code

NANO/NNOCF

Primary exchange

LSE

Secondary exchange

OTC

Share price performance

Business description

Nanoco Group is a global leader in developing and manufacturing cadmium-free quantum dots and other nanomaterials, with c 375 patents. Focus applications are advanced electronics, displays, bio-imaging and horticulture.

Analysts

Dan Ridsdale

+44 (0)20 3077 5700

Max Hayes

+44 (0)20 3077 5700

Nanoco Group is a research client of Edison Investment Research Limited

Nanoco’s trading update confirms that H124 revenues and EBITDA are anticipated to be in line with company expectations. The main new information is that the company has commenced the build and fitout of a new 300m wafer device facility to accelerate product development and test cycles with both existing and new clients. This gives Nanoco scope to grow development revenues in the near term and reduce time to market of new production materials, while aligning the development platform with infrastructure used for high-volume semiconductor manufacture.

Year end

Revenue (£m)

EBITDA*
(£m)

PBT*
(£m)

EPS*
(p)

EV/sales
(x)

P/E
(x)

07/21

2.1

(2.8)

(4.7)

(1.3)

29.3

N/A

07/22

2.5

(2.1)

(4.6)

(1.3)

24.8

N/A

07/23

5.6

(0.4)

(3.6)

(0.7)

10.9

N/A

07/24e

8.6

1.3

(0.4)

(0.1)

7.2

N/A

Note: *EBITDA, PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

The building and fitout of a wafer device development and test facility at the Runcorn site will enable Nanoco to apply its nanomaterials to 300mm CMOS semiconductor wafers, the dominant format for semiconductor chips used in high-volume applications. This should significantly accelerate the company’s development and testing cycle, as currently materials need to be sent to clients for on-wafer testing – a process that can take months. The investment required for this facility is not disclosed, but we understand that the equipment is used and has been acquired at significantly discounted rates. Therefore we do not expect large-scale adjustments to our investment forecasts.

The rest of the trading update confirms milestones previously announced. The company has received the second and final tranche of the litigation proceeds (net $71.75m) and is on track to return the previously communicated £33–40m to shareholders, with proposals for the amount and structure set to be announced shortly. The company fulfilled its first commercial order in November (we assume this is with STMicroelectronics), heralding Nanoco’s transition from development stage to a commercial supplier of quantum materials. We note that STMicro’s fab in Crolles has significant 300mm capacity, typically associated with high volume production, which matches Nanoco’s new test facility. This was followed up by a joint development agreement (JDA) with STMicroelectronics to optimise second-generation sensing materials, adding to the development revenues from a two-year JDA with the company’s major Asian chemical partner, also for second-generation sensing materials. Nanoco has added very relevant expertise to its board, hiring Jalal Bagherli (ex Dialog Semiconductor CEO) and Dieter May (ex chairman and CEO of Osram Opto Semiconductors) as non-executive directors.

Nanoco’s current market cap of £65m is only slightly above the planned £33–40m shareholder return plus the £20m expected to be retained. This implies the market is assigning almost no value to Nanoco’s commercial opportunities, which have taken very meaningful steps forward over the last 18 months, or its intellectual property, validated through the Samsung settlement. This seems to be an overly pessimistic valuation scenario.

General disclaimer and copyright

This report has been commissioned by Nanoco Group and prepared and issued by Edison, in consideration of a fee payable by Nanoco Group. 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.

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Nanoco Group and prepared and issued by Edison, in consideration of a fee payable by Nanoco Group. 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).

Australia

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.

United Kingdom

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.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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