Thin Film Electronics
Written by
Thin Film Electronics |
New funding and mass-market moves |
Three new partners |
Tech hardware & equipment |
22 February 2016 |
ADR research
ADR share price performance
Business description
Next events
Analysts
Thin Film Electronics is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||
Thinfilm has secured $42m in new funding from Woodford, which has agreed to acquire 17.8% of the shares. The company has also announced two NFC OpenSense deals: an exclusive partnership to deliver the technology to clients of Arc, a shopper marketing agency within Leo Burnett, and a collaboration with Constantia Flexibles, a leading manufacturer of flexible packaging and labels. These deals further underpin our expectation of substantially increased order volumes for NFC OpenSense from H216, not only in security-conscious areas such as pharma and beverages, but also across the broader consumer spectrum. If realized, we see considerable upside potential for the earnings outlook and valuation, especially now that financing is assured for the year ahead.
Year end |
Revenue ($m) |
PTP* |
EPADR |
DPADR |
EV/Sales |
Gross Yield |
12/13 |
1.9 |
(10.4) |
(25.2) |
0.0 |
98.0 |
N/A |
12/14 |
4.5 |
(24.2) |
(48.9) |
0.0 |
44.2 |
N/A |
12/15e |
4.0 |
(28.0) |
(52.4) |
0.0 |
54.2 |
N/A |
12/16e** |
13.2 |
(32.5) |
(58.5) |
0.0 |
19.8 |
N/A |
Note: Converted at 8.5844/US$1 Dividend yield excludes withholding tax. Investors should consult their tax advisor regarding the application of any domestic and foreign tax laws. **Does not reflect proposed share issue.
Woodford deal a positive endorsement of Thinfilm
Woodford Investment Management will acquire 120m shares in a private placement at NOK3.00 per share, subject to EGM. As part of the share purchase consideration it will also acquire 40m warrants with an exercise price NOK4.50 ($5.23 per ADR). We view the private placement to Woodford as positive in resolving Thinfilm’s funding needs for the next year and bringing in one of the best known and well-respected UK fund management houses as a shareholder.
Arc and Constantia are major influencers
We believe that both Arc and Constantia have the potential to facilitate substantial order flows for Thinfilm. Arc is a leading global specialist in in-store marketing, with Proctor & Gamble, Coca-Cola, MillerCoors and McDonald’s among its clients. Constantia, which has also placed a six-figure unit order, is the world’s fourth largest producer of flexible packaging with over 3,000 customers including top 10 global manufacturers in each of its fields of food, beverages and pharma. These include Diageo (already a THIN client), AB InBev, Unilever, GSK, J&J and Danone. Company statements indicate that Arc values NFC OpenSense primarily in terms of its consumer engagement benefits rather than its tamper-proof functionality.
Valuation: DCF potential growth
If Thinfilm can establish itself in the wider consumer products markets, we see significant potential to increase our sales forecasts from 2017 and to increase our DCF valuation, currently $7.77 per ADR ($7.00 after adjusting for the planned equity issue). Investor confidence should be increased by the funding security provided by the new equity issue and the presence of Woodford on the share register.
Exhibit 1: Financial summary
US$000s |
2013 |
2014 |
2015e |
2016e* |
||
Year-end December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
1,897 |
4,479 |
4,022 |
13,224 |
EBITDA |
|
|
(10,420) |
(23,550) |
(28,542) |
(30,171) |
Operating Profit (before amort. and except.) |
|
|
(10,688) |
(24,855) |
(30,133) |
(32,006) |
Intangible Amortization |
0 |
0 |
0 |
0 |
||
Exceptionals |
(2,154) |
0 |
0 |
0 |
||
Share-based payments |
(847) |
(941) |
(921) |
(1,395) |
||
Operating Profit |
(13,689) |
(25,796) |
(31,054) |
(33,401) |
||
Net Interest |
274 |
701 |
2,105 |
(507) |
||
Pre-tax profit (norm) |
|
|
(10,415) |
(24,155) |
(28,028) |
(32,513) |
Pre-tax profit (FRS 3) |
|
|
(13,416) |
(25,096) |
(28,949) |
(33,908) |
Tax |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(10,415) |
(24,155) |
(28,028) |
(32,513) |
||
Profit After Tax (FRS 3) |
(13,416) |
(25,096) |
(28,949) |
(33,908) |
||
Average Number of ADRs Outstanding (m) |
41.3 |
49.3 |
53.5 |
55.5 |
||
EPADR - normalized (c) |
|
|
(25.2) |
(48.9) |
(52.4) |
(58.5) |
EPADR - (IFRS) (c) |
|
|
(32.5) |
(50.9) |
(54.1) |
(61.1) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
||
EBITDA Margin (%) |
N/A |
N/A |
N/A |
N/A |
||
Operating Margin (before GW and except.) (%) |
N/A |
N/A |
N/A |
N/A |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
3,112 |
7,189 |
14,181 |
22,417 |
Intangible Assets |
0 |
2,319 |
2,387 |
2,458 |
||
Tangible Assets |
3,112 |
4,870 |
11,794 |
19,959 |
||
Investments |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
45,121 |
33,870 |
16,812 |
11,215 |
Stocks |
0 |
451 |
611 |
2,502 |
||
Debtors |
1,318 |
2,565 |
2,865 |
7,536 |
||
Cash |
43,803 |
30,854 |
13,337 |
1,177 |
||
Other |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(5,865) |
(4,748) |
(6,147) |
(40,222) |
Creditors |
(5,865) |
(4,748) |
(6,147) |
(8,222) |
||
Short term borrowings |
0 |
0 |
0 |
(32,000) |
||
Long Term Liabilities |
|
|
0 |
0 |
0 |
0 |
Long term borrowings |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
0 |
0 |
0 |
0 |
||
Net Assets |
|
|
42,367 |
36,311 |
24,846 |
(6,590) |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(7,905) |
(24,078) |
(26,903) |
(34,657) |
Net Interest |
234 |
569 |
570 |
570 |
||
Tax |
0 |
0 |
0 |
0 |
||
Capex |
(2,487) |
(3,217) |
(7,909) |
(10,071) |
||
Acquisitions/disposals |
0 |
(2,700) |
(674) |
0 |
||
Financing |
48,560 |
16,477 |
17,399 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
38,402 |
(12,949) |
(17,517) |
(44,159) |
||
Opening net debt/(cash) |
|
|
(5,401) |
(43,803) |
(30,854) |
(13,337) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(43,803) |
(30,854) |
(13,337) |
30,823 |
Source: Thinfilm, Edison Investment Research. Note: *Does not reflect planned share issue.
|