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Elsol - happy to disclose that yes I sold out at 190p as soon as I learnt of the disastrous news. You can paint the decision any colour you like but the bottom line is the board FAILED to renegotiate acceptable terms with its largest customer.
- no I don’t want a re-entry. The company is not investable at present.
- maybe if there is positive news next January I will re-enter. Until then I will monitor developments.
- lovely company but not a lovely investment
SI - that's just because you sold out and want to re-buy at lowest entry price and I disagree with your assumption no news will be forthcoming upside to change to SP materially upwards until 2025 - thats a crazy suggestion given that small buyer runs can change the SP markedly.
Adding point 7 just come to mind for completeness; in John's recent share soc presentation (I recall but could have been another one) he openly stated and discussed with a delegate that he more often than not cannot reconcile the share price performance to the BOD's view on underlying business performance characteristics/market opportunity/progress. The risk situation of the existing leaving customer was known at the time clearly since many rounds of negotiations had been taking place and a stand-off was in place. So for him to say he has never seen a better outlook for the business over the last 3-4 years then this must be a strong factor to consider in his positive state of mind and ability to push out a under-performing customer relationship. Im sure John will provide more background and context in coming days/weeks.
Sadly I tend to agree that the share price will continue to fall - potentially back to 120p. My logic for this is as follows:
1. The trading update will just repeat the bad news. Canaccord advised it was our largest customer worth half the 2023 revenue.
2. Canaccord confirmed projections have moved back a year. We are now looking at 2026 for positive EBITDA.
3. The money markets move money from minute to minute. They are not going to leave money sat around waiting until January 2025 which is when the next likely positive trading update will occur.
Unless there is unexpected positive news I can’t see any significant improvement in share price until early 2025
They admit that they are not competitive in their main market. I'm not sure what you were expecting. This has a lot further to fall once the gravity of the announcement is fully understood.
With hindsight, the focus on the N. American market was wrong. This used to be a UK based operation, they shipped everything over to US and now I'm afraid it's back to square one as it seems only the European market can sustain their price point.
It seems like we've wasted the last three years and in some respects this is true but perhaps this was a lesson that needed to be learnt the hard way. We still have the other 50% of revenues that are hopefully more sustainable on both sides of the Atlantic and we now have a better understanding of what we can't do as well as what we'd like to do.
We are well equipped for success in Europe, much wiser and with a cash pile to spend prudently. Super absorbents? Leather? Coatings? One of these simply gas to hit the mark and that's where the risk lies.
Lets not kid ourselves, this has much further to fall and much longer to reach JS $100m business, Still hopeful, albeit with a 5 year rather than a 3 year horizon.
With respect to your comment Paris as ever there are many deeper details on this matter and it is not all due to the BOD (and may in fact not be a BOD contribution issue at all). There may be a contribution from any of the below factors amongst other things that I am sure others may comment on:
1. Limited free shares that are being traded sometimes with 'group think' creating bigger dips of oversold and peaks of overbought around the mean and at the moment there is a greater possibility of the former;
2. Some PIs/investors not knowing (a) the wider value of longer term R&D strategy and sum of the parts of the ALL the
company's commercial investment assets and (b) Mgt's tradeoffs when dealing with portfolios of products and R&D assets (ITX is not quite as long an R&D gestation period as pharma, my subject matter area, but obviously has similar features and traits squashed into a series of, say, 2-3 years $ investment cycles).
3. UK general short termist share investment culture - it looks like this is at a height currently, just before interest rates relax to longer run norms again (that's one of the reasons why we now have access to N American PIs through the share restructuring efforts, so await future benefits from that as and when the coin drops on our undervalue situation here State side).
4. UK PIs - overly focused on here and now revenue / profit metrics and some sellers throwing the baby out with the bath water over-selling. Also not helped by BoD not wanting to over - guide the market on upside potential (prudence that lends itself from traditional accounting practices).
5. Lack of consideration of most here of the last rather solid professional investor round given these professional guys had access to more inside knowledge of future outlook/opportunity. Arguably, the 250p (5p old money) more than a year ago is still a good benchmark now due to good diversification progress since then, offset clearly by the leaver marginal customer profit impact in recent days.
6. ITX cannot be held hostage to shareholder fragility to run their day to day business - they have to focus on long term shareholder value / creation and that is what they appear to be doing and John and his team have just proved it to you - if the BOD had not ejected this 'marginal' customer in 6-12 months time some here would be annoyed and frustrated that key diversification customers failed to order due to supply chain resilience concerns/capacity. We just dont know all the facts right now. The BOD have full knowledge on the business we do not as small minority investors; we need to trust their decision making and read the tea leaves as insightful outsiders.
Other thoughts welcome Paris - I dont mean to cut you off in order to get the best of all of us on our ITX BB which has been very good to date
Hmmm it never takes negative news well , but it is very volatile anyway never much volume needed to move it either way , still going to plummet from here I think 120 maybe , that's ok , if it's hads good has they say someone will buy it out .just an opinion dyor
I have not either bought or sold any but just watched my worldly wealth go up and down, I do not blame the company for kicking non profitable work into the dustbin. It can often prove a clever move. Time will tell but in the meantime I will just keep a watching eye here.....
Been here since 2016, and never seen such bad price reaction … The BOD need to do something or else this is going to get really bad
IMO The bottom line is that we deliberately dumped a marginal customer for reasons explained re: profitability. The fact the Board did this indicates a position of strength in the wider portfolio and progress for diversification. We have yet to see how that plays out in coming days in the announcement but for me the intrinsic worth of ITX assets is above current share price, but do your own research, on the science , patented chemistry and recent data/CEO messaging.
Hi. I did not first call out Dr Greg, it was another person on this BB. The product range is quite diverse and seemed to fit circumstances but others can comment if the customer was another one.
Hi JD
That was me who put that forward as a likely candidate, based on the length of time we have dealt with them and the current state of play on their website, looks a bit chaotic?
Have had a look at the proactive interview again and the RNS, but cannot see any mention of a dishwasher tablet customer being mentioned?
"it has been unable to reach satisfactory commercial terms with one of its major existing merchandizing customers in North America for supply in 2024"
I have only put this forward as a very possible candidate for consideration/Investigation.
ATB
AJT
Hi Elsol - how confident are you identifying DG as the lost customer?
Perhaps I've missed something here, but his company product range doesn't include dishwasher detergent, only laundry detergent and definitely no tablets whatsoever to be found anywhere.
Rest of your comments great! - thank you and keep them coming....
Thanks Bod, small caps are a massive gamble either way. Probably like you, always thinking ITX is less of a risk compared to the rest.
Smart.
My top ups on drops are always conservative, no one knows when the falling knife has reached its destination.
I will keep the majority of my top ups for post trading update, and pile in if prudent.
ATB.
Takes a brave person to catch a falling knife. I’m waiting on the sidelines until we bottom out which may not be until a few days after the trading update.
Good on you.
So many PIs look at high share prices and buy in, while kicking themselves for not buying at the lows, but when faced with the opportunity to buy low they don't take it because it's unpopular.
In other news: 90% of PIs lose money on the stock market.
Today's research, much appreciated.
Transition to a more lucrative customer seams to be the 'go' here.
At recent highs of 2.70, I was wishing that I'd have bght more on the previous lows, although I haven't sold any, I'm taking this sell off opportunity to increase.
ATB to us long term investors.
Hi Elsol
Thank you for supplying the BB with the information from the Broker update, it is very much appreciated.
ATB
AJP
I've just also noticed another new sales category in the Broker forecast detail - its called mysteriously "Other" and sales commence this year at $0.25m then 3x upwards in 25F, then doubles again in 26F. So something is quite close and presumably the Broker has been quite prudent at this point with the forecast est. since its a new line item. It will come from the company is my view (subtle messaging to Broker on upside).
Sorry typo Broker target 19% down not 12% .
Some more key information and thoughts to take home from the Brokers note based on further review:
1. Interestingly ITX ARE still going forward with a new production plant - that's strange isn't it given a large loss in production volumes in 2024! The capex projections for 2024/25/26 are in total c.$4m which compares to $0.8m in the prior 3 years. 500% increase in capex with a fairly low capital intensive business. Big growth plans are ahead (based on strong pipeline and smiling John on recent interviews) and as I said before in my plant capacity note - there is a near term capacity constraint (scarcity issue) and the timing of freeing plant capacity is absolutely pivotal to ITX confidently assuring new customer orders and diversification wins with the transition to higher volume diversified products (e.g. superabsorbants/paints/leather etc)
2. We could not lock in the plant for the whole of FY 2024 to a business customer that was delivering, say, 20% Gross margin - less than the average for FY22/23 for the business as a whole of c.29%. In the case of this 20% GM it is unlikely given SG&A and tax we would bearly scrape, say, a PAT 2-3% at best => low margin busy fool volume.
3. After spending the c $3m on a new plant we are still left with $c2m cash in BS in 2026 when we are op. cashflow positive.
4. Broker note made a point that the "customer" - assumed as "Dr Greg - Dear Sensitive Home" from another poster detective (which seems probable based on their web site comment around plant science and linkage to multi carbon based chemical backbone). Broker mentioned said merchandiser was trying year on year to push back the ITX commercial terms to the point of unreasonableness - The outfit seems to be quite egotisticially driven from their web site and I believe they have cut there nose off to spite their face by terminating their customer offers in favour of "detergent concentrates that use less plastic"
"You may have noticed all their products are displayed as SOLD OUT. This is because they
are making an exciting transition from diluted spray and detergents to concentrates." Good luck Greg when you lose 100% of your existing branded product lines very few businesses actually survive in the long run especially with a 6-8 month supply issue before the next launch of different products => massive loss of confidence in company
4. Price target from Conaccord Genuity is -12% down 400p - 325p - Our share price is more adverse down at this point. I still think investors don't really understand that we have significant sunk cost investments within 'In process R&D ' that is about to start selling and has reached almost launch readiness (shoes/paints/super a's). These assets have no revenues or profits but must have a material value. My guess is that its at least GBP25m (if someone wanted to step into our shoes so the speak). So the Broker -12% reflects these R&D assets and counteracts/dilutes the short SP term reaction in my view.
The
I've worked in the industrial chemical sector for 35 years in both technical and commercial roles, in large multi-nationals and in small start-ups. One thing I've learnt is that you cannot charge a premium simply because your product is 'green'. Unless there is strong regulatory pressure to phase out an existing chemical, all you can really hope is that your green credentials make for a more compelling sales pitch. Yesterday's news is just further evidence that price and performance will always be the prime considerations. We operate in a low margin, volumes business and there's nothing wrong with that.
Unfortunately, ITX haven't just lost 30% of revenues with an important customer, we have lost an entire market in which we are clearly not price competitive. Believe me, all customers in this market will have exactly the same price expectations. JS has probably known this for quite a while, the inflated revenue numbers looked good on paper but were unsustainable. It finally it became time to lance the boil. I wonder how many other revenue streams are unsustainable?
Don't get me wrong, I'm not suggesting anything underhand. This is a growing company, trying to find it's niche. You need to chase the business, try to make it work, stick with it. At some point you need to accept you cannot compete in all sectors of the market. Take the hit and move on. These setbacks are necessary to mature and to realise that no matter how 'green' you may profess to be, ultimately you need to compete on price.
What worries me is that the detergent market was the one area where we were told we could compete. It would be nice to know the specifics around who the customer was and the exact application but I understand that the company are under no obligation to provide this level of detail. Clearly the company believe that the European market is different and the investment in European manufacturing capacity may not be a sign of growth but one of necessity. If so, it feels like we're starting all over again; wiser? yes! and with a decent cash pile behind us; but still a massive reset that takes us back to where we were two or three years ago.
Canaccord confirmed the loss of ITX’s single largest customer. They “accounted for around half 2023 revenue”.
2024E revenue forecast reduced from $9.5m to $6.2m
“We expect gross margin for Itaconix to be higher with other customers. However, the absolute lower revenue means a significant cut to EBITDA expectations for this year and next year”.
EBITDA 2024E reduced down from (0.8) to (1.6)
2025E reduced down from 0.2 to (0.6)
2026E 0.5
All figures US$m.
Canaccord state that they are essentially pushing numbers out one year to the right (which is what I calculated myself yesterday). Therefore 2026 is now forecast to be the first positive year.
Price target downgraded from 400p to 325p
Some positive points to cling on to:
Canaccord remain Buyers
Itaconix will remain in a substantial cash positive position throughout the forecast period thanks to the 2023 fundraise.
One to consider?
https://sensitivehome.com
Interesting headline home page?
We have had tie in here for many years, is this the costomer?
https://itaconix.com
Capital Markets Day presentation
24minutes 25 seconds in
ATB
AJP
Agree with Chilting that we need time to really see the pros/cons of this. We all have views but can't know for sure as we don't have all the facts or a crystal ball.
I remain sceptical for now (although staying quite heavily invested).
The point about this being an ITX driven decision is only based on comms from ITX, there are two sides to a negotiation and the customer clearly thinks there may be better alternatives (whether cost or quality or whatever criteria).