Nano Dimension — First commercial sale inaugurates roll-out

Nano Dimension — First commercial sale inaugurates roll-out

Q317 marked Nano Dimension’s first sale of a commercial-grade printer, the DragonFly Pro, which was to global manufacturing services giant, Jabil. In general, however, the sales cycle is proving much longer than management originally anticipated, so we are revising our estimates downwards to reflect a more cautious commercial roll-out and cutting our indicative valuation from US$7.04/ADS to US$6.39/ADS.

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Nano Dimension

First commercial sale inaugurates roll-out

Q317 results

Tech hardware & equipment

30 November 2017

Price*

NIS2.77

Market cap

NIS171m

*Priced at 24 November 2017

NIS3.51:US$1.00

Net cash (US$m) at end Sept 2017

12.0

Shares in issue

61.8m

ADRs in issue

12.4m

Free float

76%

Code

NNDM

Primary exchange

TASE

Secondary exchange

NASDAQ

Share price performance

%

1m

3m

12m

Abs

(19.6)

(12.0)

(41.1)

Rel (local)

(20.0)

(15.8)

(43.5)

52-week high/low

NIS5.3

NIS2.8

Business description

Nano Dimension focuses on the development of advanced 3D printed electronics systems and advanced additive manufacturing. The company’s initial products include a 3D printer for rapid prototyping of multi-layer PCBs and associated nanotechnology conductive and dielectric inks.

Next events

FY17 results

March 2018

Analysts

Anne Margaret Crow

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

Q317 marked Nano Dimension’s first sale of a commercial-grade printer, the DragonFly Pro, which was to global manufacturing services giant, Jabil. In general, however, the sales cycle is proving much longer than management originally anticipated, so we are revising our estimates downwards to reflect a more cautious commercial roll-out and cutting our indicative valuation from US$7.04/ADS to US$6.39/ADS.

Year end

Revenue (US$m)

EBITDA**
(US$m)

PBT*
(US$m)

EPADS*
(US$)

DPADS
(US$)

P/E
(x)

12/15***

0.0

(2.4)

(2.1)

(0.39)

0.0

N/A

12/16

0.0

(6.5)

(6.8)

(0.83)

0.0

N/A

12/17e

1.2

(14.6)

(15.7)

(1.41)

0.0

N/A

12/18e

9.5

(9.6)

(11.0)

(0.75)

0.0

N/A

Note: *PBT and EPADS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **EBITDA stated after deducting amortisation of capitalised R&D. ***Translated from NIS.

First commercial sales received

In early Q317 Nano Dimension announced that it had gained sufficient information from the beta phase to move to commercialisation. The feedback from the beta phase has been used to define a professional-grade version, which debuted at events in the US and Europe in November. Jabil Inc. and the University of Technology, Sydney, will be the first commercial customers. Nano Dimension has prepared the infrastructure for supporting commercial roll-out later this quarter by opening its nanoparticle ink production facility in October and expanding its distribution network in Australia, Canada, France and Italy.

Revenues from beta test continuing

Nano Dimension generated US$143k revenues during Q317 (US$150k in Q217, US$0m in Q316) from leasing DragonFly printers to customers participating in the beta testing programme. Operating losses were lower than in Q217 (US$4.2m vs US4.8m), as both R&D and sales and administrative expenses reduced slightly. Cash fell by US$4.5m during the quarter to US$12.0m (there is no debt). We note that while Nano Dimension is in active discussions with around 100 potential customers, the sales cycle is proving much longer than management originally anticipated, so we are revising our near-term estimates downwards to reflect more cautious roll-out assumptions.

Valuation: Significant upside on volume roll-out

Our indicative DCF-based valuation is now NIS 4.49/ordinary share or US$6.39/ADS (formerly US$7.04/ADS, NIS5.06/ordinary share). This uses a discount rate of 12% to reflect the current uncertainty regarding the rate of commercial ramp-up. Delivery of meaningful volumes of the DragonFly Pro in FY18 would improve visibility and remove some uncertainty, potentially justifying a lower risk valuation (at a 10% discount rate) of up to US$9.0/ADS or NIS6.3/share. Our revised estimates identify a c US$4.2m funding gap in FY18. We model this as satisfied through debt, although it could potentially be dilutive if financed through the issue of new shares.

Revisions to estimates

As discussed in our August outlook note, now that Nano Dimension has a commercial-grade printer available and an effective distribution network in place, management is better able to judge how long it takes to complete sales. Since Nano Dimension is selling a completely new, high ticket value piece of equipment to large organisations, the sales cycle is prolonged and purchases have to fit within customers’ budgetary calendars, meaning that some sales that were initially expected to land in FY17 have been pushed into customers’ next financial year and slipped into FY18. On the other hand, management notes that the actual sales price that may be achieved is higher than originally envisaged. We revise our estimates to reflect both trends. The promotion of non-executive director Avi Reichtental, who joined the board in April 2017, to co-chairman, may help guide the management team through the tricky early commercialisation phase. Avi was previously president and CEO of 3D print major, 3D Systems.

We note that, following these revisions, we model a US$4.2m financing gap in FY18. In accordance with Edison’s policy, we model this as satisfied through long-term debt.

Exhibit 1: Revisions to estimates

FY16

FY17e

FY18e

Actual

Old

New

% change

Old

New

% change

Printer deliveries

6*

34*

18*

(47.1)

150

60

(60.0)

Revenues (US$m)

0.0

2.4

1.2

(49.5)

17.8

9.5

(46.4)

EBITDA (US$m)

(6.5)

(13.7)

(14.6)

6.3

(4.0)

(9.6)

137.5

PBT (US$m)

(6.8)

(14.7)

(15.7)

6.7

(5.6)

(11.0)

97.2

EPADS (US$)

(0.83)

(1.32)

(1.41)

6.7

(0.38)

(0.75)

97.2

Net cash/(debt)

12.4

9.0

7.7

(14.5)

2.2

(4.2)

N/A

Source: Company data, Edison Investment Research. Note: *Including beta-phase units.

Valuation: Delivery on milestones remains key

Exhibit 2: Revenues from printer and ink sales

2017e

2018e

2019e

2020e

2021e

2022e

2023e

2024e

2025e

2026e

Total units delivered

18*

60

120

180

252

328

364

384

400

408

Price per unit (US$k)**

175

175

158

142

128

121

115

109

105

101

Revenues from equipment sales and leasing (US$k)

1,210

8,565

17,490

27,855

34,489

41,804

41,868

41,962

41,975

41,102

Revenues from ink sales (US$k)

0

950

2,976

6,011

9,934

14,658

20,066

25,368

30,380

35,011

Total revenues (US$k)

1,210

9,515

20,466

33,866

42,083

54,362

61,933

67,330

72,356

76,114

Source: Edison Investment Research. Note: *Including beta-phase units. **After commissions to distributors.

We continue to present a DCF calculation for valuation purposes. This adopts the roll-out assumed in our estimates for the first two years, then ramps up revenues through to FY26 as shown in Exhibit 2. Although we have pulled back roll-out during FY17 and FY18 (see Exhibit 1), we have retained the longer-term assumptions regarding market share detailed in our August note, leading to estimated sales of 400 units in 2025. Clearly, this sales progression is predicated on Nano Dimension making the step from successful beta test to meaningful commercial deliveries.

Exhibit 3: Edison DCF valuation sensitivities against discount and terminal growth rates

US$/ADS

Discount rate

NIS/ordinary share

Discount rate

10.0%

12.0%

14.0%

10.0%

12.0%

14.0%

Terminal growth

0.0%

7.48

5.53

4.22

0.0%

5.25

3.89

2.97

1.0%

8.15

5.92

4.47

1.0%

5.73

4.16

3.14

2.0%

9.00

6.39

4.75

2.0%

6.32

4.49

3.33

3.0%

10.08

6.97

5.08

3.0%

7.08

4.89

3.57

4.0%

11.52

7.68

5.48

4.0%

8.09

5.39

3.85

Source: Edison Investment Research

Noting that ongoing commercial discussions indicate that Nano Dimension will be able to charge more for the DragonFly Pro than was originally anticipated, we have adjusted our valuation model to reflect a higher sales price at the start of the forecast period (US$175k/unit after deduction of commission to distributors rather than US$150k before), but applied a more aggressive price erosion rate. Our assumptions regarding gross margin and capital expenditure remain as described in our August note.

As there remains significant executional risk with regard to the volume ramp-up, which will not be reduced until the first commercial deliveries commence at the end of this year, we keep our discount rate at 12% as well as holding the terminal growth rate at 2%. This gives an indicative share price at current levels of risk of NIS4.49/ordinary share or US$6.39/ADS (previously NIS5.06/ordinary share or US$7.04/ADS). The share price has declined by 10% since the Q317 results and is now NIS2.77/ordinary share (US$3.95/ADS), substantially below our indicative valuation. In our opinion, this reflects investor concerns on how long it will take to win meaningful sales volumes once commercial versions of the printer start shipping at the end of this year.

So far Nano Dimension has stuck broadly to the roll-out timetable detailed in our initiation note, which is very encouraging for an early-stage technology company. Once investors gain confidence that Nano Dimension is able to secure meaningful levels of orders for the DragonFly Pro we expect the share price to start to move past our indicative valuation, which is based on current levels of execution risk, towards the lower-risk (say, 10% discount) valuation levels. However, while the current share price appears to already factor in a somewhat slower roll-out, further delays in initial commercial sales may cause the share price to decline further. We note also the potential share price dilution if the funding gap that we have identified is satisfied through the issue of new shares. This analysis excludes the earlier-stage development initiatives such as structural electronics and human tissue printing.

Exhibit 4: Financial summary

US$'000

2015

2016

2017e

2018e

Year-end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

46

1,210

9,515

Cost of Sales (including amortisation of capitalised IP)

0

(193)

(1,516)

(4,426)

Gross Profit

0

(147)

(306)

5,089

EBITDA

 

 

(2,437)

(6,465)

(14,578)

(9,611)

Operating Profit (before amort. and except.)

(2,473)

(6,829)

(15,687)

(10,954)

Intangible Amortisation

0

0

0

0

Exceptionals

0

(149)

0

0

Other

(3,262)

(2,025)

(2,025)

(2,025)

Operating Profit

(5,735)

(9,003)

(17,712)

(12,979)

Net Interest

355

38

0

0

Profit Before Tax (norm)

 

 

(2,118)

(6,791)

(15,687)

(10,954)

Profit Before Tax (FRS 3)

 

 

(5,380)

(8,965)

(17,712)

(12,979)

Tax

0

0

0

0

Profit After Tax (norm)

(2,118)

(6,791)

(15,687)

(9,201)

Profit After Tax (FRS 3)

(5,380)

(8,965)

(17,712)

(12,979)

Average Number of Shares Outstanding (m)

5.4

8.2

11.2

12.3

EPADS - normalised (c)

 

 

(39.49)

(83.30)

(140.69)

(75.03)

EPADS

 

 

(39.49)

(83.30)

(140.69)

(58.43)

EPADS - (IFRS) (c)

 

 

(1.00)

(1.10)

(1.59)

(1.06)

Dividend per ADS (c)

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

53.5

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

 

 

4,151

8,903

10,439

10,621

Intangible Assets

2,910

6,787

6,021

5,255

Tangible Assets

1,131

2,006

4,308

5,256

Restricted deposits

110

110

110

110

Current Assets

 

 

9,057

13,323

10,288

4,596

Stocks

0

0

750

1,500

Debtors

264

814

1,689

2,634

Cash

8,665

12,379

7,719

332

Restricted deposits

128

130

130

130

Current Liabilities

 

 

(907)

(1,968)

(2,843)

(3,788)

Creditors

(907)

(1,968)

(2,843)

(3,788)

Short-term borrowings

0

0

0

0

Long-Term Liabilities

 

 

(254)

(956)

(1,376)

(5,876)

Long-term borrowings

0

0

0

(4,500)

Liability in respect of government grants

(254)

(956)

(1,376)

(1,376)

Net Assets

 

 

12,047

19,302

16,508

5,553

CASH FLOW

Operating Cash Flow

 

 

(3,330)

(5,914)

(14,908)

(10,361)

Net Interest

0

0

0

0

Tax

0

0

0

0

Investment in intangible & tangible assets

(2,344)

(4,167)

(2,644)

(1,525)

Acquisitions/disposals

0

0

0

0

Financing

14,362

13,525

12,892

0

Dividends

0

0

0

0

Net Cash Flow

8,688

3,444

(4,660)

(11,886)

Opening net debt/(cash)

 

 

(207)

(8,665)

(12,379)

(7,719)

HP finance leases initiated

0

0

0

0

Other

(230)

270

0

0

Closing net debt/(cash)

 

 

(8,665)

(12,379)

(7,719)

4,168

Source: Company accounts, Edison Investment Research


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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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Tel Aviv +44 (0)20 3734 1007
Medinat Hayehudim 60

Herzilya Pituach, 46766

Israel

Research: TMT

The Marketing Group — Acquisition of German wildcard

The Marketing Group (TMG) has made its first acquisition under the new management team. Although relatively small (FY16 revenues of €1.5m), wildcard fits well with Ranieri Communications, adding to its PR, social and influencer network. wildcard communications brings in a good range of blue-chip clients and opportunities for cross selling. Our FY18e and FY19e earnings estimates are nudged ahead, having being increased by 10% following the Q3 results. Industry interest in TMG’s start-up blockchain-enabled global media agency, Truth, has been very strong. Having spent time sorting out the inherited group, it is clear management is looking for profitable growth, which should lead to an improving rating.

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