Nanoco Group — Reaching two key milestones in H222

Nanoco Group (LSE: NANO)

Last close As at 09/11/2024

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0.35 (3.24%)

Market capitalisation

GBP22m

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Research: TMT

Nanoco Group — Reaching two key milestones in H222

Nanoco’s post-close trading update notes that the FY22 performance was broadly in line with management’s expectations. We therefore leave our estimates unchanged except for adjustments relating to the broker option element of the fund-raising programme in June, which was very significantly oversubscribed, and charges linked to the loan notes issued in July 2021.

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TMT

Nanoco Group

Reaching two key milestones in H222

Trading update

Tech hardware and equipment

18 August 2022

Price

46.6p

Market cap

£150m

Net cash (£m) at end February 2022 (excluding lease liabilities and £5.4m (net) from June placing, subscription and broker option)

2.6

Shares in issue

322.4m

Free float

85.2%

Code

NANO

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

28.7

33.1

154.6

Rel (local)

22.4

33.3

153.2

52-week high/low

48.3p

17.1p

Business description

Nanoco Group is a global leader in the development and manufacture of cadmium-free quantum dots and other nanomaterials, with c 560 patents. Focus applications are advanced electronics, displays, bio-imaging and horticulture.

Next event

FY22 results

October 2022

Analysts

Anne Margaret Crow

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

Nanoco Group is a research client of Edison Investment Research Limited

Nanoco’s post-close trading update notes that the FY22 performance was broadly in line with management’s expectations. We therefore leave our estimates unchanged except for adjustments relating to the broker option element of the fund-raising programme in June, which was very significantly oversubscribed, and charges linked to the loan notes issued in July 2021.

Year end

Revenue
(£m)

EBITDA
(£m)

PBT*
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

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**

2.4

(2.7)

(4.1)

(1.10)

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

FY22 trading broadly in line with expectations

Management notes that FY22 revenues will be £2.4m, in line with our estimates, and that adjusted LBITDA will be slightly ahead of their expectations because of successful cost management. There was £6.8m cash (excluding lease liabilities and financial liabilities) at the year end. This represented a £5.0m improvement during H222, the result of good cash management and £5.4m (net) from the June fund-raising. This gives a cash runway into CY25, which is beyond the point Nanoco expects organic activities to be self-financing.

Reaching two key milestones in H222

During H222, Nanoco signed an agreement for a fifth work package from its major European customer, which we have previously inferred is ST Microelectronics (ST). The package covers the final phase of a scale-up of a longer wavelength material and development of a third material. It extends for one year commencing May 2022. In May the US Patent Trial and Appeal Board (PTAB) determined in favour of Nanoco in respect of all 47 claims in the five patents. The court hearing, which will focus on infringement and damages, is set to start on 12 September 2022 and to last for one week. We note that a judge has recently rejected Samsung’s motion to change the definition of a technical term in the case, in effect upholding the decision made in the Markman hearing in March 2021.

Valuation: Dependent on patent litigation outcome

Ahead of the programme with ST definitely moving to commercial production, we believe that much of Nanoco’s value still lies in a satisfactory resolution of the patent infringement dispute with Samsung, an event which we believe is much more likely given the positive verdict from the PTAB in May. Although the value of a potential payout has not been disclosed, we calculate that lost revenue in the US 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

The fund-raising programme in June consisted of a placing, subscription and broker option. Our previous estimates modelled the funds raised and new shares issued from the placing and subscription but not from the broker option because the results of this had not been announced at the time. We now adjust our FY22 and FY23 estimates to include the funds raised and shares issued from the broker option, which was significantly oversubscribed.

Although the company’s trading update notes that FY22 adjusted LBITDA was slightly reduced compared to the Board’s expectations, reflecting good management of the cost base, we have not changed our FY22 LBITDA estimate.

We are not making any changes to our FY23 estimates at present, other than increasing financial charges by £0.4m to £0.5m to reflect charges associated with the loan notes issued in July 2021. Our FY23 estimates do not model any potential revenues associated with a ramp-up in volume production for ST. We will review this when the FY22 results are announced in October when there should be better visibility of ST’s requirements.

We make a minor adjustment to our FY22 cash-flow estimate to bring cash (gross) in line with the £6.8m noted by management.

Exhibit 1: Estimate revisions

Y/E July

FY21

FY22

FY23

£'m

Actual

New

Old

% change

New

Old

% change

Revenues

2.1

2.4

2.4

0.0%

2.4

2.4

0.0%

Gross profit

1.9

2.2

2.2

0.0%

2.2

2.2

0.0%

EBITDA

(2.9)

(2.6)

(2.6)

0.0%

(2.7)

(2.7)

0.0%

Normalised PBT

(4.7)

(4.4)

(4.4)

0.0%

(4.1)

(3.7)

10.7%

Normalised net income

(4.0)

(3.8)

(3.8)

0.0%

(3.5)

(3.1)

12.8%

Normalised diluted EPS (p)

(1.3)

(1.2)

(1.2)

-0.2%

(1.1)

(1.0)

9.6%

Net debt/(cash)

(0.3)

(3.3)

(0.3)

1216.1%

(1.0)

2.3

N/A

Source: Company accounts, Edison Investment Research

Exhibit 2: Financial summary

£'m

2019

2020

2021

2022e

2023e

31-July

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

restated

restated

Revenue

 

 

7.1

3.9

2.1

2.4

2.4

Cost of Sales

(0.7)

(0.3)

(0.2)

(0.2)

(0.2)

Gross Profit

6.5

3.5

1.9

2.2

2.2

EBITDA

 

 

(3.8)

(2.9)

(2.9)

(2.6)

(2.7)

Operating profit (before amort. and excepts.)

 

(5.0)

(4.8)

(4.6)

(3.9)

(3.6)

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

Exceptionals

(0.3)

(0.7)

0.0

0.0

0.0

Share-based payments

(0.2)

(0.4)

(0.4)

(0.7)

(0.7)

Reported operating profit

(5.5)

(5.9)

(5.0)

(4.6)

(4.3)

Net Interest

(0.0)

(0.1)

(0.1)

(0.5)

(0.5)

Profit Before Tax (norm)

 

 

(5.0)

(4.9)

(4.7)

(4.4)

(4.1)

Profit Before Tax (reported)

 

 

(5.5)

(6.0)

(5.1)

(5.1)

(4.8)

Reported tax

1.2

0.9

0.7

0.6

0.6

Profit After Tax (norm)

(3.9)

(4.0)

(4.0)

(3.8)

(3.5)

Profit After Tax (reported)

(4.4)

(5.1)

(4.4)

(4.5)

(4.2)

Minority interests

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

(3.9)

(4.0)

(4.0)

(3.8)

(3.5)

Net income (reported)

(4.4)

(5.1)

(4.4)

(4.5)

(4.2)

Average Number of Shares Outstanding (m)

286

287

306

308

322

EPS - normalised (p)

 

 

(1.34)

(1.39)

(1.30)

(1.23)

(1.10)

EPS - normalised fully diluted (p)

 

 

(1.34)

(1.39)

(1.30)

(1.23)

(1.10)

EPS - basic reported (p)

 

 

(1.52)

(1.77)

(1.44)

(1.46)

(1.31)

Dividend per share (p)

0.00

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

 

 

5.6

4.6

3.4

3.0

2.5

Intangible Assets

3.9

3.7

2.9

2.6

2.4

Tangible Assets

1.7

0.9

0.5

0.4

0.1

Investments & other

0.0

0.0

0.0

0.0

0.0

Current Assets

 

 

9.5

7.2

5.8

8.6

6.0

Stocks

0.2

0.1

0.1

0.1

0.1

Debtors

1.1

1.0

1.2

1.0

0.7

Cash & cash equivalents

7.0

5.2

3.8

6.8

4.5

Other

1.1

0.9

0.7

0.7

0.7

Current Liabilities

 

 

(5.0)

(3.6)

(2.4)

(2.2)

(2.2)

Creditors

(2.6)

(2.3)

(1.6)

(1.5)

(1.5)

Tax and social security

0.0

0.0

0.0

0.0

0.0

Short term financial leases

(0.7)

(0.6)

(0.5)

(0.5)

(0.5)

Short term bank debt

0.0

0.0

0.0

0.0

0.0

Other

(1.6)

(0.6)

(0.3)

(0.3)

(0.3)

Long Term Liabilities

 

 

(1.8)

(1.3)

(3.8)

(4.3)

(4.3)

Long term financial leases

(1.0)

(0.5)

(0.1)

(0.6)

(0.6)

Loan notes

(0.4)

(0.5)

(3.5)

(3.5)

(3.5)

Other long term liabilities

(0.4)

(0.2)

(0.1)

(0.1)

(0.1)

Net Assets

 

 

8.3

7.0

3.1

5.1

2.0

Minority interests

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

8.3

7.0

3.1

5.1

2.0

CASH FLOW

Operating Cash Flow

(3.8)

(3.0)

(2.8)

(2.6)

(2.7)

Working capital

1.8

(1.4)

(1.4)

0.0

0.3

Exceptional & other

(0.0)

(0.8)

(0.1)

0.0

0.0

Tax

1.4

1.1

0.9

0.7

0.7

Net Operating Cash Flow

 

 

(0.6)

(4.1)

(3.5)

(1.8)

(1.7)

Capex

(3.1)

(0.7)

(0.3)

(0.4)

(0.4)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

Net interest

0.0

0.0

(0.0)

(0.1)

(0.1)

Equity financing

0.0

3.2

0.0

5.4

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

0.0

(0.8)

2.3

0.0

0.0

Net Cash Flow

(3.7)

(2.4)

(1.5)

3.1

(2.2)

Opening net debt/(cash)

 

 

(10.3)

(6.6)

(4.7)

(0.3)

(3.3)

FX

0.0

0.0

0.0

0.0

0.0

Other non-cash movements

0.0

0.6

(3.0)

0.0

0.0

Closing net debt/(cash)

 

 

(6.6)

(4.7)

(0.3)

(3.3)

(1.0)

Source: Company accounts, Edison Investment Research


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 2022 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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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 2022 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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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