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Nanoco Group’s trading update flagged that, while its development work on second-generation materials continues to progress as expected, it does not expect to receive a follow-on order for commercial materials in FY24. These orders were expected to be low volume, hence the delay is not particularly material from a financial perspective, although it does remove an expected milestone to gauge Nanoco’s pathway to volume production. We have adjusted our estimates to reflect a more cautious scenario for the near-term ramp-up of volume material sales. Success will be defined by the extent to which Nanoco-based sensors are designed into handsets and other devices in the 2026/27 timeframe, when the infrared sensing market is expected to see an inflection. Nanoco and its lead partner hope to have more visibility on end-customers’ commercialisation pipelines by the time of the FY24 results in October.
Nanoco Group |
Visibility pushed back |
Trading update |
Tech hardware and equipment |
4 July 2024 |
Share price performance
Business description
Next events
Analyst
Nanoco Group is a research client of Edison Investment Research Limited |
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Nanoco Group’s trading update flagged that, while its development work on second-generation materials continues to progress as expected, it does not expect to receive a follow-on order for commercial materials in FY24. These orders were expected to be low volume, hence the delay is not particularly material from a financial perspective, although it does remove an expected milestone to gauge Nanoco’s pathway to volume production. We have adjusted our estimates to reflect a more cautious scenario for the near-term ramp-up of volume material sales. Success will be defined by the extent to which Nanoco-based sensors are designed into handsets and other devices in the 2026/27 timeframe, when the infrared sensing market is expected to see an inflection. Nanoco and its lead partner hope to have more visibility on end-customers’ commercialisation pipelines by the time of the FY24 results in October.
Year end |
Revenue* (£m) |
EBITDA* |
EPS* |
Net cash |
EV/sales |
P/E |
07/22 |
2.5 |
(2.1) |
(1.3) |
2.8 |
3.6 |
N/A |
07/23 |
5.6 |
(0.5) |
(0.7) |
3.6 |
1.6 |
N/A |
07/24e |
7.9 |
0.5 |
(0.3) |
20.0 |
1.1 |
N/A |
07/25e |
9.4 |
1.5 |
0.4 |
15.2 |
0.9 |
35.1 |
Note: *Revenue, EBITDA and EPS include £6m annual Samsung licence revenue, drawn from deferred income. EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
No follow-on order in FY24, development on track
The main news in the trading update was that management no longer expects to receive a follow-on (albeit low-volume) commercial order in FY24, although the reason for this development is currently unclear. Nanoco continues to develop secondgeneration infrared sensing materials with STMicroelectronics and an Asian chemicals company. The company’s device fabrication facility, a key investment and made to accelerate development cycles, is now fully operational and Nanoco has shipped the first sample devices to its partners and clients. On the display side, Nanoco continues to work on small-scale developments with customers, but a new anchor partner has not been secured yet.
Cautionary trim to estimates but FY26/27 is key
We lower our FY24 revenues from £8.3m to £7.9m leaving EBITDA and year end net cash unchanged, but lower our FY25 revenue and EBITDA on a precautionary basis, due to the absence of this expected milestone. Ultimately, success will be defined by the extent to which Nanoco-based sensors are designed into handsets and other devices in the 2026/27 timeframe, with lead indicators on this front likely to be the key catalyst for the share price in the short-to-medium term.
Valuation: Range unchanged, visibility impaired
Given the expected £20m net cash position at year end, the 28% fall in the share price following the trading update equates to a c 60% decrease in enterprise value to £6.9m. While visibility has not improved, as expected, the upside potential is unchanged. We believe Nanoco’s intellectual property, expertise, manufacturing and test capability, and customer relationships, backed by the strong balance sheet and low-cost model, provide strategic value for downside protection.
Changes in estimates
Our estimate changes are detailed below. Management expects FY24 revenues to be slightly below consensus, with EBITDA at the lower end and net cash remaining at £20m (matching our estimate of £20m). As Edison was at the low end of consensus, we pare back our FY24 revenues from £8.3m to £7.9m, but leave EBITDA and net cash unchanged. We lower our FY25 estimates on a cautionary basis, to reflect the absence of the milestone.
Given that Nanoco’s financial returns will be determined by events beyond our forecast period, we believe these changes are material to the investment case. The implications of the lack of follow-on order for commercial material in FY24 are impossible to gauge at this stage, although the absence of an expected milestone clearly reduces visibility. Nanoco and its lead partner hope to have more clarity on end-customers’ commercialisation pipelines by the time of the FY24 results in October.
Exhibit 1: Estimate changes
£m |
FY23 |
FY24e |
FY25e |
||||
Actual |
Old |
New |
Change |
Old |
New |
Change |
|
Revenues |
5.6 |
8.3 |
7.9 |
-4% |
10.3 |
9.4 |
-9% |
EBITDA |
(0.5) |
0.5 |
0.5 |
-5% |
2.2 |
1.5 |
-32% |
Reported operating profit |
15.0 |
1.1 |
1.1 |
-2% |
0.4 |
(0.3) |
-182% |
Reported operating margin |
267% |
14% |
14% |
4% |
-3% |
||
Normalised net income |
(2.1) |
(0.7) |
(0.7) |
4% |
1.7 |
1.0 |
-41% |
Normalised diluted EPS (p) |
(0.66) |
(0.25) |
(0.26) |
4% |
0.60 |
0.35 |
-41% |
Net debt/(cash) |
(3.6) |
(20.0) |
(20.0) |
0% |
(17.0) |
(15.2) |
-11% |
Cash |
8.2 |
20.0 |
20.0 |
0% |
17.0 |
15.2 |
-11% |
Debt |
(4.6) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Source: Nanoco accounts, Edison Investment Research
Exhibit 2: Financial summary
£m |
2022 |
2023 |
2024e |
2025e |
||
Year end 31 July |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
2.5 |
5.6 |
7.9 |
9.4 |
Cost of Sales |
(0.9) |
(0.8) |
(0.4) |
(0.6) |
||
Gross Profit |
1.5 |
4.8 |
7.5 |
8.8 |
||
EBITDA |
|
|
(2.1) |
(0.5) |
0.5 |
1.5 |
Operating profit (before amort. and excepts.) |
|
|
(4.2) |
(2.9) |
(0.4) |
0.6 |
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
18.9 |
2.5 |
0.0 |
||
Share-based payments |
(0.6) |
(1.0) |
(1.0) |
(1.0) |
||
Reported operating profit |
(4.8) |
15.0 |
1.1 |
(0.3) |
||
Net Interest |
(0.5) |
(0.7) |
0.2 |
0.7 |
||
Exceptionals |
0.0 |
(4.7) |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
(4.6) |
(3.6) |
(0.2) |
1.3 |
Profit Before Tax (reported) |
|
|
(5.2) |
9.6 |
1.3 |
0.4 |
Reported tax |
0.5 |
1.5 |
(0.5) |
(0.3) |
||
Profit After Tax (norm) |
(4.1) |
(2.1) |
(0.7) |
1.0 |
||
Profit After Tax (reported) |
(4.7) |
11.1 |
0.8 |
0.1 |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(4.1) |
(2.1) |
(0.7) |
1.0 |
||
Net income (reported) |
(4.7) |
11.1 |
0.8 |
0.1 |
||
Average Number of Shares Outstanding (m) |
308 |
322 |
278 |
290 |
||
EPS - normalised (p) |
|
|
(1.32) |
(0.66) |
(0.26) |
0.35 |
EPS - normalised fully diluted (p) |
|
|
(1.32) |
(0.66) |
(0.26) |
0.35 |
EPS - basic reported (p) |
|
|
(1.52) |
3.44 |
0.29 |
0.03 |
Dividend per share (p) |
0.00 |
0.00 |
0.00 |
0.00 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
1.8 |
7.7 |
8.6 |
8.0 |
Intangible Assets |
1.6 |
1.0 |
0.8 |
0.6 |
||
Tangible Assets |
0.2 |
2.4 |
3.5 |
3.1 |
||
Deferred income |
0.0 |
4.3 |
4.3 |
4.3 |
||
Other |
0.0 |
1.8 |
1.8 |
1.8 |
||
Current Assets |
|
|
9.0 |
43.1 |
23.3 |
19.0 |
Stocks |
0.2 |
0.3 |
0.7 |
0.9 |
||
Debtors |
1.5 |
34.0 |
2.1 |
2.3 |
||
Cash & cash equivalents |
6.8 |
8.2 |
20.0 |
15.2 |
||
Other (including proceeds from settlement receivable in FY24) |
0.5 |
0.6 |
0.6 |
0.6 |
||
Current Liabilities |
|
|
(2.4) |
(14.0) |
(9.0) |
(9.0) |
Creditors |
(1.5) |
(2.6) |
(1.6) |
(1.6) |
||
Tax and social security |
0.0 |
(0.8) |
(0.8) |
(0.8) |
||
Short term financial leases |
(0.2) |
(0.5) |
(0.5) |
(0.5) |
||
Short term bank debt |
0.0 |
(4.0) |
0.0 |
0.0 |
||
Other (including deferred licence income) |
(0.7) |
(6.1) |
(6.1) |
(6.1) |
||
Long-term Liabilities |
|
|
(4.0) |
(20.2) |
(38.6) |
(32.6) |
Long-term financial leases |
(0.0) |
(1.4) |
(0.7) |
(0.7) |
||
Loan notes |
(3.9) |
(0.6) |
0.0 |
0.0 |
||
Other (including deferred licence income) |
(0.1) |
(18.2) |
(38.0) |
(32.0) |
||
Net Assets |
|
|
4.3 |
16.6 |
(15.7) |
(14.7) |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
4.3 |
16.6 |
(15.7) |
(14.7) |
CASH FLOW |
||||||
Operating Cash Flow |
(2.3) |
(0.4) |
0.5 |
1.5 |
||
Working capital |
0.1 |
24.5 |
50.2 |
(6.5) |
||
Exceptional & other |
(0.2) |
(47.5) |
2.5 |
0.0 |
||
Tax |
0.7 |
(4.2) |
0.0 |
(0.3) |
||
Net Operating Cash Flow |
|
|
(1.8) |
(27.6) |
53.2 |
(5.2) |
Capex |
(0.1) |
(0.4) |
(2.1) |
(0.5) |
||
Net proceeds from Samsung settlement |
0.0 |
34.5 |
0.0 |
0.0 |
||
Net interest |
(0.0) |
(4.7) |
0.4 |
0.9 |
||
Equity financing |
5.4 |
0.0 |
(34.5) |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(0.6) |
(0.5) |
0.0 |
0.0 |
||
Net Cash Flow |
2.9 |
1.3 |
17.1 |
(4.8) |
||
Opening net debt/(cash) |
|
|
(0.3) |
(2.8) |
(3.6) |
(20.0) |
FX |
0.0 |
0.2 |
0.1 |
0.0 |
||
Other non-cash movements |
(0.4) |
(0.6) |
(0.8) |
0.0 |
||
Closing net debt/(cash) |
|
|
(2.8) |
(3.6) |
(20.0) |
(15.2) |
Source: Company data, Edison Investment Research
|
|
Research: TMT
Northern Data has acquired 2,000 NVIDIA H200 graphic processing units (GPUs) through a newly formed strategic partnership with Supermicro, an established provider of high-performance computing (HPC) server and storage solutions. Taiga Cloud, Northern Data’s cloud platform, will be the first in Europe to offer access to H200 GPU hardware, the most advanced GPUs currently available, demonstrating management’s commitment to be a leading innovator in the European HPC market. Delivery and deployment of these H200 GPUs is expected in Q424. The acquisition enhances Northern Data’s GPU capacity beyond its planned deployment of 20,000 NVIDIA H100 GPUs in FY24, solidifying its position as Europe’s largest AI hardware cluster and cloud service provider. At the end of June management confirmed that for FY23, revenue is expected to be towards the top end of its €65–€75m range, while adjusted EBITDA is anticipated at the higher end of the negative €20m to negative €5m range. For FY24, management expects revenue within a €200–240m range, underpinning its confidence in achieving FY25 revenues of €520–570m.