Nanoco Group — European partnership not moving forward

Nanoco Group (LSE: NANO)

Last close As at 02/09/2024

GBP0.09

−0.18 (−1.96%)

Market capitalisation

GBP18m

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Research: TMT

Nanoco Group — European partnership not moving forward

Nanoco Group’s announcement that the collaboration with its European partner is essentially coming to an end is clearly disappointing news. We reduce our FY25 revenues by £2.5m and FY25 net cash by £2.1m to reflect this, although the contractual unwinding and potential restructuring may prompt further changes. While Nanoco is now clearly in a significant transitional state, the partnership with the Asian partner continues. The group’s intellectual property, expertise, manufacturing and test capability provide it with potential strategic value, with Nanoco’s strong balance sheet and low-cost model providing a degree of optionality.

Written by

Dan Ridsdale

Head of Technology

scott-webb-s58uyQWc42Q-unsplash (1)

TMT

Nanoco Group

European partnership not moving forward

Commercial update

Tech hardware and equipment

2 September 2024

Price

8.6p

Market cap

£16m

Estimated net cash (£m) at FY24

20.0

Shares in issue (excluding 13.8m shares held in treasury)

186m

Free float

84.2%

Code

NANO, NNOCF

Primary exchange

LSE

Secondary exchange

OTC

Share price performance

%

1m

3m

12m

Abs

(40.0)

(48.9)

(47.5)

Rel (local)

(40.5)

(49.9)

(53.3)

52-week high/low

23.4p

9.18p

Business description

Nanoco Group is a global leader in the development and manufacture of cadmium-free quantum dots and other nanomaterials for high-volume use cases. Focus applications are sensors and display.

Next events

FY24 results

October 2024

Analyst

Dan Ridsdale

+44 (0)20 3077 5700

Nanoco Group is a research client of Edison Investment Research Limited

Nanoco Group’s announcement that the collaboration with its European partner is essentially coming to an end is clearly disappointing news. We reduce our FY25 revenues by £2.5m and FY25 net cash by £2.1m to reflect this, although the contractual unwinding and potential restructuring may prompt further changes. While Nanoco is now clearly in a significant transitional state, the partnership with the Asian partner continues. The group’s intellectual property, expertise, manufacturing and test capability provide it with potential strategic value, with Nanoco’s strong balance sheet and low-cost model providing a degree of optionality.

Year end

Revenue*
(£m)

EBITDA*
(£m)

EPS*
(p)

Net cash
(£m)

EV/sales
(x)

P/E
(x)

07/22

2.5

(2.1)

(1.3)

2.8

(1.6)

N/A

07/23

5.6

(0.5)

(0.7)

3.6

(0.7)

N/A

07/24e

7.9

0.5

(0.3)

20.0

(0.5)

N/A

07/25e

6.8

(0.6)

(0.4)

13.0

(0.6)

N/A

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.

Lack of high-volume wins and partner restructuring

Following discussions with Nanoco’s European partner (which we believe is STMicro), Nanoco no longer expects to receive follow-on commercial orders for its first-generation sensing materials. The partner has also served notice on its joint development of second-generation materials, essentially bringing this partnership to an end. We believe the termination is a result of the partner not making adequate headway in securing high-volume design wins for its sensors, combined with a broader refocusing of strategic priorities on their part. STMicro announced a profit warning and restructuring plan in July 2024. Nanoco achieved all development milestones and had received positive feedback on the second-generation materials. Nanoco will negotiate end-of-project terms with their European customer and seek to remove obstacles to pursue small-scale market opportunities in sectors like industrial, defence and healthcare. The company’s joint development partnership with the Asian chemicals company remains ongoing.

Estimates cut, lengthy cash runway

We have reduced our FY25 revenue estimate by £2.5m, while leaving our cost base estimates largely unchanged (fixed cash cost base of £7.2m) pending further information on the partnership unwinding and potential restructuring. FY25 net cash reduces to £13.0m (from £15.2m previously) giving Nanoco about 20 months of cash runway, even if no further revenue-generating partnerships are secured. Our estimate changes are detailed below.

Valuation: IP and balance sheet provide support

With an estimated net cash position of £20m, dropping to £13.0m, Nanoco’s enterprise value is negative, based on FY24e net cash and around £3.0m based on our estimated FY25e figures. The group’s intellectual property, expertise, manufacturing and test capability provide potential strategic value, while Nanoco’s strong balance sheet and low-cost model providing a degree of optionality.

Changes in estimates

Our estimate changes are detailed below and will be refined once we have more detail on Nanoco’s unwinding of the partnership, together with potential restructuring. We remind investors that our FY24 and FY25 P&L figures include £6m licensing revenue from Samsung, stemming from Nanoco’s successful legal action and settlement. These revenues are drawn down from deferred revenue (£46.5m at H124e) and do not generate positive cash flows. Nevertheless, the group’s cost base is modest, at c £7.2m per annum, giving Nanoco about 20 months of cash runway in the absence of significant revenue from new customers or further cost rationalisation.

Exhibit 1: Estimate changes

July year end

FY23

FY24e

FY25e

Actual

Unchanged

Old

New

Change

Revenues

5.6

7.9

9.4

6.8

-27%

EBITDA

(0.5)

0.5

1.5

(0.6)

-140%

Reported operating profit

15.0

1.1

(0.3)

(2.5)

659%

Reported operating margin

267%

14%

-3%

-36%

Normalised net income

(2.1)

(0.7)

1.0

(1.1)

-208%

Normalised diluted EPS (p)

(0.66)

(0.26)

0.35

(0.38)

-208%

Net debt/(cash)

(3.6)

(20.0)

(15.2)

(13.0)

-14%

Source: Edison Investment Research

Exhibit 2: Financial summary

£m

2022

2023

2024e

2025e

31-July

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

2.5

5.6

7.9

6.8

Cost of Sales

(0.9)

(0.8)

(0.4)

(0.1)

Gross Profit

1.5

4.8

7.5

6.7

EBITDA

 

 

(2.1)

(0.5)

0.5

(0.6)

Operating profit (before amort. and excepts.)

 

 

(4.2)

(2.9)

(0.4)

(1.5)

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

(2.5)

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)

(0.8)

Profit Before Tax (reported)

 

 

(5.2)

9.6

1.3

(1.8)

Reported tax

0.5

1.5

(0.5)

(0.3)

Profit After Tax (norm)

(4.1)

(2.1)

(0.7)

(1.1)

Profit After Tax (reported)

(4.7)

11.1

0.8

(2.1)

Minority interests

0.0

0.0

0.0

0.0

Net income (normalised)

(4.1)

(2.1)

(0.7)

(1.1)

Net income (reported)

(4.7)

11.1

0.8

(2.1)

Average Number of Shares Outstanding (m)

308

322

278

290

EPS - normalised (p)

 

 

(1.32)

(0.66)

(0.26)

(0.38)

EPS - normalised fully diluted (p)

 

 

(1.32)

(0.66)

(0.26)

(0.38)

EPS - Basic Reported

 

 

(1.52)

3.44

0.29

(0.71)

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

16.8

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

13.0

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)

(16.8)

Minority interests

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

4.3

16.6

(15.7)

(16.8)

CASH FLOW

Operating Cash Flow

(2.3)

(0.4)

0.5

(0.6)

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

(7.4)

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

(6.9)

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)

(13.0)

Source: Company data, 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 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.

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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

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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