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Research: TMT
Nanoco has announced that a sequence of purchase orders from several existing customers for development work and validation materials means that FY23 revenues are likely to be 20% higher than FY22 rather than at a similar level. We adjust our estimates accordingly, noting that these still exclude any revenues from potential production orders, the value of which will depend on the initial use case and ramp-up timing.
Nanoco Group |
Strengthening customer engagement |
Trading update |
Tech hardware and equipment |
13 September 2022 |
Share price performance
Business description
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Nanoco Group is a research client of Edison Investment Research Limited |
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Nanoco has announced that a sequence of purchase orders from several existing customers for development work and validation materials means that FY23 revenues are likely to be 20% higher than FY22 rather than at a similar level. We adjust our estimates accordingly, noting that these still exclude any revenues from potential production orders, the value of which will depend on the initial use case and ramp-up timing.
Year end |
Revenue (£m) |
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** |
2.9 |
(2.2) |
(3.6) |
(0.94) |
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.
Customer engagement strengthening
As discussed in our April note, Nanoco is working on sensing materials for five different customers. The revenue uplift results from additional purchase orders for development and validation materials for the European electronics customer, who we have previously inferred is ST Microelectronics (ST), an additional development work package and orders for materials from the major Asian chemical company and work for the other customers. Nanoco is supplying nanomaterials to ST and the Asian customer so that they can both manufacture sensing devices for their respective end-customers to try out in complete electronic devices.
Slight delay to trial
The start date of the trial between Nanoco and Samsung has been rescheduled from 12 September 2022 to 3 October 2022 as the court had scheduled a number of trials on the September date on the basis that the majority of cases settle before trial. The trial, which may be rescheduled again, will last a week, at the end of which the outcome will be announced, provided there has been no pre-agreed settlement.
Valuation: Dependent on patent litigation outcome
Ahead of any of the customer programmes definitely moving to commercial production, we believe that much of Nanoco’s value lies in a satisfactory resolution of the patent infringement dispute with Samsung, an outcome which we believe is much more likely given the positive verdict from the US Patent Trial and Appeal Board in May. Although the value of a potential payout has not been disclosed, we calculate that lost revenue in the United States 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
We modify our FY23 estimates to reflect:
■
An additional £0.5m revenues from development work packages and the provision of validation materials.
■
£0.3m grant income from Innovate UK for two projects, as recently announced. The first is for the development of singly doped colloidal dots for potential use in quantum technology applications and has been won in collaboration with The University of Manchester. It extends for 18 months. The second is to develop a new material set based on alternative chemical elements for potential use in infrared sensing and other consumer electronics applications. It extends for 12 months. Both projects are scheduled to commence in early FY23.
Exhibit 1: Revisions to estimates
Y/E July |
FY21 |
FY22 |
FY23 |
|||||
£'m |
Actual |
New |
Old |
% change |
New |
Old |
% change |
|
Revenues |
2.1 |
2.4 |
2.4 |
0.0% |
2.9 |
2.4 |
20.8% |
|
Gross profit |
1.9 |
2.2 |
2.2 |
0.0% |
2.6 |
2.2 |
20.7% |
|
EBITDA |
(2.9) |
(2.6) |
(2.6) |
0.0% |
(2.2) |
(2.7) |
-18.4% |
|
Normalised PBT |
(4.7) |
(4.4) |
(4.4) |
0.0% |
(3.6) |
(4.1) |
-12.1% |
|
Normalised net income |
(4.0) |
(3.8) |
(3.8) |
0.0% |
(3.0) |
(3.5) |
-14.2% |
|
Normalised diluted EPS (p) |
(1.3) |
(1.2) |
(1.2) |
0.0% |
(0.9) |
(1.1) |
-14.2% |
|
Net debt/(cash) |
(0.3) |
(3.3) |
(3.3) |
0.0% |
(1.5) |
(1.0) |
49.6% |
|
Source: Company data, Edison Investment Research
Our FY23 estimates do not model any potential revenues associated with commercial production of nanomaterials for sensing or other applications. We will review this when the FY22 results are announced in October when there should be better visibility of ST’s requirements. The potential impact on FY23 revenues will depend on when any potential production ramp-up begins and on the initial use case. Nanoco’s sensing materials are being incorporated into sensing chips which may be used in many applications. Deployment by a major mobile phone company in a key handset model could potentially generate c £15–20m annual revenues for Nanoco, while deployment in a more niche application, such as virtual reality glasses, would generate lower revenues, but is likely to catalyse take-up by other customers. Longer term, should Nanoco’s material be widely deployed in multiple handset models or other high-volume devices, we note that the existing production capacity in Runcorn could generate sensing application revenues of £100m/year working 24/7.
Exhibit 2: Financial summary
£'m |
2020 |
2021 |
2022e |
2023e* |
||
31-July |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
restated |
|||||
Revenue |
|
|
3.9 |
2.1 |
2.4 |
2.9 |
Cost of Sales |
(0.3) |
(0.2) |
(0.2) |
(0.3) |
||
Gross Profit |
3.5 |
1.9 |
2.2 |
2.6 |
||
EBITDA |
|
|
(2.9) |
(2.9) |
(2.6) |
(2.2) |
Operating profit (before amort. and excepts.) |
|
(4.8) |
(4.6) |
(3.9) |
(3.1) |
|
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(0.7) |
0.0 |
0.0 |
0.0 |
||
Share-based payments |
(0.4) |
(0.4) |
(0.7) |
(0.7) |
||
Reported operating profit |
(5.9) |
(5.0) |
(4.6) |
(3.8) |
||
Net Interest |
(0.1) |
(0.1) |
(0.5) |
(0.5) |
||
Profit Before Tax (norm) |
|
|
(4.9) |
(4.7) |
(4.4) |
(3.6) |
Profit Before Tax (reported) |
|
|
(6.0) |
(5.1) |
(5.1) |
(4.3) |
Reported tax |
0.9 |
0.7 |
0.6 |
0.6 |
||
Profit After Tax (norm) |
(4.0) |
(4.0) |
(3.8) |
(3.0) |
||
Profit After Tax (reported) |
(5.1) |
(4.4) |
(4.5) |
(3.7) |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(4.0) |
(4.0) |
(3.8) |
(3.0) |
||
Net income (reported) |
(5.1) |
(4.4) |
(4.5) |
(3.7) |
||
Average Number of Shares Outstanding (m) |
287 |
306 |
308 |
322 |
||
EPS - normalised (p) |
|
|
(1.39) |
(1.30) |
(1.23) |
(0.94) |
EPS - normalised fully diluted (p) |
|
|
(1.39) |
(1.30) |
(1.23) |
(0.94) |
EPS - basic reported (p) |
|
|
(1.77) |
(1.44) |
(1.46) |
(1.16) |
Dividend per share (p) |
0.00 |
0.00 |
0.00 |
0.00 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
4.6 |
3.4 |
3.0 |
2.5 |
Intangible Assets |
3.7 |
2.9 |
2.6 |
2.4 |
||
Tangible Assets |
0.9 |
0.5 |
0.4 |
0.1 |
||
Investments & other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
7.2 |
5.8 |
8.6 |
6.5 |
Stocks |
0.1 |
0.1 |
0.1 |
0.1 |
||
Debtors |
1.0 |
1.2 |
1.0 |
0.7 |
||
Cash & cash equivalents |
5.2 |
3.8 |
6.8 |
5.0 |
||
Other |
0.9 |
0.7 |
0.7 |
0.7 |
||
Current Liabilities |
|
|
(3.6) |
(2.4) |
(2.2) |
(2.2) |
Creditors |
(2.3) |
(1.6) |
(1.5) |
(1.5) |
||
Tax and social security |
0.0 |
0.0 |
0.0 |
0.0 |
||
Short term financial leases |
(0.6) |
(0.5) |
(0.5) |
(0.5) |
||
Short term bank debt |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(0.6) |
(0.3) |
(0.3) |
(0.3) |
||
Long Term Liabilities |
|
|
(1.3) |
(3.8) |
(4.3) |
(4.3) |
Long term financial leases |
(0.5) |
(0.1) |
(0.6) |
(0.6) |
||
Loan notes |
(0.5) |
(3.5) |
(3.5) |
(3.5) |
||
Other long term liabilities |
(0.2) |
(0.1) |
(0.1) |
(0.1) |
||
Net Assets |
|
|
7.0 |
3.1 |
5.1 |
2.5 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
7.0 |
3.1 |
5.1 |
2.5 |
CASH FLOW |
||||||
Operating Cash Flow |
(3.0) |
(2.8) |
(2.6) |
(2.2) |
||
Working capital |
(1.4) |
(1.4) |
0.0 |
0.3 |
||
Exceptional & other |
(0.8) |
(0.1) |
0.0 |
0.0 |
||
Tax |
1.1 |
0.9 |
0.7 |
0.7 |
||
Net Operating Cash Flow |
|
|
(4.1) |
(3.5) |
(1.8) |
(1.2) |
Capex |
(0.7) |
(0.3) |
(0.4) |
(0.4) |
||
Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net interest |
0.0 |
(0.0) |
(0.1) |
(0.1) |
||
Equity financing |
3.2 |
0.0 |
5.4 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(0.8) |
2.3 |
0.0 |
0.0 |
||
Net Cash Flow |
(2.4) |
(1.5) |
3.1 |
(1.7) |
||
Opening net debt/(cash) |
|
|
(6.6) |
(4.7) |
(0.3) |
(3.3) |
FX |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
0.6 |
(3.0) |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(4.7) |
(0.3) |
(3.3) |
(1.5) |
Source: Company data, Edison Investment Research. *Excluding potential production orders.
|
|
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