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To be clear this is a risky stock but that's the competitive nature of the marketplace and the need to be at the very top of the technology tree. If the products are no good then everything folds.
You cannot transfer the same financial metrics you would use for evaluating established FTSE stocks to this one. Or if you like you could but then this summarises the UK's traditional problem in investing in risky start up tech businesses - you don't invest so they raise capital in the US instead.
"Maybe that was the case pre 2021, it's certainly not anymore. The debt will be the death of them, I'm not a shorter, however if I was going to short anything then it would be this."
This statement only shows your zero comprehension for this stock. They currently have more in cash and cash assets $122.7m than of debt $100m. They acquired the debt facility last year with the intention to utilize it otherwise what is the point in acquiring a facility larger than what is needed? Comparatively, to their US counterparts their debt position is fine. If their breech of the FCCR was really an issue the lenders wouldn't have given them a waiver permitting the breech until June 2024.
The lower margins are down to what they inherited from OpenFive and R&D investment for the Connectivity products due to launch in 2024.
If you listen to the investor call, you will know that the current H1 EBITDA margin of 17% will revert back to the 25% figure as per their guidance for 2023 due to higher profitability expected in H2 which can already be forseen in their backlog as most of it is from higher margin revenue off their high end IP and Custom Silicon. You can still expect a small loss to be reported for end of 2023 but as they move into 2024 they will move back into profit territory as the revenues start to scale up.
"This or that item in the financial results is neither here nor there"
Maybe that was the case pre 2021, it's certainly not anymore. The debt will be the death of them, I'm not a shorter, however if I was going to short anything then it would be this.
Still landing.
Still expanding.
Still accelerating technology leadership.
Still translating technology leadership into orders.
Revenue and profitability ramping up / a work in progress.
DYOR but I'm comfortable that they are in the right place at the right time and ultimately this will result in a very attractive valuation.
I have a short at 112p which is burning me a bit.
The company continues to fail on its financial management.
A loss and reduced margins plus a nearly breached covenent.
I expect this company to finally fold at some point as I don't trust the directors an inch.
I still expect to make a profit on my short but I misjudged the level.
Avoid this one at all costs
Cheers
Barcap
This is a growing company. You need to have the same mind set as countless US tech and biotechs which are built up on debt / equity and the promise of a happy tomorrow.
This or that item in the financial results is neither here nor there
This company sinks or swims on the quality of its products. End of.
You really think a broker like JPM are going to call them out on capitalised R&D or a covenant breach? Come on
How has this dumpster truck fire got an EV of £1.1b?
All the broker reactions are broadly positive, noting these issues relate to their transition to being an ASIC provider.
JPM: Outlook & Guidance. The company has reiterated FY23 revenue guidance of $340-360m of revenue or $350m at the mid-point. EBITDA guidance for FY23 is $87m (c25% EBITDA margin). With 1H margins at 17%, the implied 2H margin for the company to meet full-year guidance is 33.5%. We believe that the revenue mix in 2H will shift from lower-margin silicon business (acquired from OpenFive) to more License & NRE revenues, which would catalyze sequential margin improvement.
With no changes to company guidance, we do not expect changes to FY23 consensus.
Only just got the covenant breach patched up before the results release...
"The Group did not meet the minimum fixed charges coverage ratio of 1.25x in the second quarter of FY 2023, which represented a breach of the bank covenant as at 30 June 2023. As such, the Term Loan and the RCF are payable on demand at 30 June 2023 and have been classified as current liabilities in the consolidated statement of financial position. On 22 September 2023, the Group signed an amendment to the credit agreement with the lenders waiving the covenant for the period to 30 June 2024, with a revised lower fixed charge coverage ratio covenant in effect from 30 September 2024 to 30 September 2025. Additionally, there is a minimum liquidity requirement that the Group must maintain for the period to 30 September 2025."
Also I note some $24m of capitalised development expenditure vs zero in prior year - easy to meet adjusted EBITDA targets if you bung a load of costs onto the balance sheet.
So in reality you have operating cash flow of $28m, a $60m working capital outflow, a $41m outflow on CAPEX + development spend & a further $12m outflow on interest expense ($10m) and lease costs.
Certainly, there appears no headroom for more large acquisitions, so we might actually get some YoY comps soon, which won't be pretty in my opinion.
AWE's addressable market is growing exponentially.
The big question is are they able to translate their industry leading solutions into market share / a slice of the cake.
Mondays interim results presentation should be interesting,
It's true what YamR1man says in regards to UK stocks. The FTSE 100 and All Share indices have been flat now for more than 6 years (apart from the Corona pandemic induced February 2020 dip and eventual recovery). I do think AWE sits in a different space though. It moved from its low point in February mainly thanks to the AI fervor that struck around May of this year and continued momentum after the July update indicated them being on track to achieve the guidance revenue.
It's worth noting that AWE's peers on NASDAQ have seen similar declines in recent weeks.
E.g.
Marvell was $66 on 1 August and fell to $57 by 18 August
Credo was $18.50 on 20 June and fell to $13.90 by 17 August
Rambus was $66 on 26 May and fell to $49.30 by 10 August
Ceva was $27 on 31 Jul and fell to $19.80 by 16 August
Broadcom was $920 on 25 Jul and fell to $817 by 18 August
So, essentially the AI fervor has died off somewhat but the expectation for growth in the sector particularly in the world of datacenters and AI remains strong for the medium term outlook. It should easily outpace the general global economy. Keep an eye on the health of the datacenter / AI economy, and check that AWE are continually demonstrating revenue growth and increasing capture of their addressable markets. This way you can determine if the investment prospect here is still compelling or not.
Dice, hope you're well.? What you have to realise is that this country and our stock market is going nowhere. The country is stagnant and most equities are going nowhere fast. Net Zero is ruining investments and the country so don't try to make sense of drops in any share positions. Good luck
Hi, I am trying to work out why the Alphawave share price is down almost 10% in a week.
You would have thought it would have risen after the announcement of its successful 3nm tapeouts of HBM3 and UCIe IP for chiplets, but still it dropped
Can it be a simple as the slowing economics in China being the reason?
Last month was the 60th DAC in San Francisco. This Design Automation Conference is mostly attended by EDA companies, but Alphawave Semi also made a presence and demoed their latest design wares in: Chiplets, High Bandwidth Memory (HBM3), Serdes (3nm 112gb XLR PAM4) and PCIe Gen6 with PAM4.
In their demo of the 112gb Ethernet, they showed that their Bit Error Rate (BER) was four orders magnitude better than the spec requirement.
$71.7 billion market cap company Micron Technology’s Vice President, Praveen Vaidyathan, noted that, “The tape-out of Alphawave Semi’s HBM3 solution in TSMC’s most advanced 3nm process is an exciting new milestone. It allows cloud service providers to leverage Alphawave Semi’s HBM3 IP subsystems and custom silicon capabilities to accelerate AI workloads in next-generation data center infrastructure.”
https://semiwiki.com/ip/332674-alphawave-semi-visit-at-60dac/
Thanks BlueRaphus. The RNS quality is improving, the webinars are helping and the results are good. I’m cautiously dripping money in again.
Wouldn’t be surprised to see someone like Broadcom make a move for AWE.
@barcap Are you going to cap your losses?
For me the good news from the trading update is that there is no change to guidance revenue for 2023. I was not expecting a change and it is good to have confirmation they are still on track to achieve it. Despite the uncertain macroeconomic environment (as the update puts it), the company’s growing pipeline reflects positive secular growth trends in data infrastructure markets and the continued investment in next-generation AI- centric connectivity solutions.
It's worth noting that the guidance revenue is 90% higher than 2022 actual revenue.
I like to do a regular comparison against their competitors to ascertain where Alphawave Semi should be priced. There are five main competitors in the connectivity space: Broadcom, Marvell, Rambus, Credo and Ceva. One of the approaches I take is to look at the EBITDA multiple. I can do this for the first three competitors listed as they all have positive operating cash flow (Credo and CEVA have negative cash flows so cannot use EBITDA multiple). The average EBITDA multiple of the three (Broadcom, Marvell and Rambus) based on current prices is 42. Alphawave EBITDA multiple (based on 2022 EBITDA and current price of £1.57) is 31.
The equivalent price for Alphawave on an EBITDA multiple of 42 is £2.13.
So on that basis Alphawave is still undervalued by more than 35% against it peers by this metric.
If I use the forward guidance 2023 EBITDA of $87 million then this yields an equivalent price of £3.93.
Another approach using 12 month forward P/S ratio comparison with all five competitors gives us an average ratio of 8.36 whereas Alphawave forward P/S ratio is currently 4.1. Again, by this metric Alphawave should be valued at £3.14 if were to trade at the 8.36 average 12 month forward P/S of its peers.
So to conclude Alphawave remains significantly undervalued compared to its peers.
Yes excellent.
Very positive update. Couldn't of asked for better IMO. Wouldn't want to still be short on this ey Barcap :) GL all
I’ve watched most of this. Well over my head! Broadcom and Marvell Technology are the main competitors in certain areas apparently. Market Caps well above Alphawave.
It can be found here: https://awavesemi.com/optical-connectivity-in-the-data-center/
Tony Chan Carusone : "The Increased Adoption of Optical Solutions to Support AI Infrastructure"
https://www.youtube.com/watch?v=vJsTvBbZqJo
For some reason it does not appear on https://www.youtube.com/@AlphawaveSemi/videos ?
Or even short to drive the price down so that they can acquire more at a discount?
Thank you, superbly explained.