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Well it’s clear the customer base has every confidence in SCE and their ability to execute-excellent contract win
Thank you for sharing Poole! It sounds like they should have listened to your advice.
Let's hope the installation/ commissioning problems can be put behind them and that proprietory information of how to fix them remains secret!
Responding to recent postings(by Guitarsolo & Fevertreeman).
Not long after I acquired as a long term investment in SCE shares in early 2022 I attended a Capital Markets Day at the company's HQ & factory in Knowsley i April 2022.
As a chartered Chemical Engineer with some experience with furnaces early in my career I was particularly interested to learn about the production process as a whole but had some concerns about the change that was planned for the production process and at the open meeting I asked management whether the feasibility of the new process would be tested prior to installing it on-site as I thought it ought to be. I recall clearly that idea was quickly Poo-pooed and passed over. I much regret now that I was perhaps too polite in not questioning their response.
It led me on a subsequent occasion when problems with the new process became evident to outsiders to contact the CEO personally by email to be informed on his behalf by a colleague of his that I be would be getting the CEO's response. None was forthcoming. Again I should have followed it up but did not.
The damage to reputation is now evident and It appears that no one outside the company (except possibly the sellers who meantime maybe helped by leakage of information have driven the share price down) reliably yet knows what is going on. I could put it more bluntly but it is about time we did.
FTM, you say the share price has barely budged in the last 10 years. Well in the last five it has been anywhere between 10p -to 80p. That's not a share price that has "barely budged". Of course, you may have bought in at higher prices (I started there).
I have always considered this to be a long-term investment (for me that is 10 years+). I first bought in 2021 so I have a long way to go. But the reason I highlight 2027/28 is that, by then, there will be a nine-figure capacity (over £150m, perhaps £250m?) and crucially by then SCE will have multiple contracts being supplied and paying at the same time. Until that capacity is built there will remain significant restraints on revenue.
Any reader of these pages (or ADVFN for that matter) will hear you frequently complain about the management (capital raises, content of RNSs etc). I am not here to defend the management and I would agree there have been a few mis-steps along the way. But I feel you're overly critical of them. The installation and commissioning of the new furnaces is something that has not been done before. The fact it went slightly askew and required about £2.5m (is that correct?) to fix them is not unexpected. But they have put that right and, crucially, own the "interlectual knowledge" about how to fix them. I view the complexity of producing this stuff as a benefit (a Buffett moat).
I acknowledge the fact that Kevin Johnson, David Bundred etc have designed a fabulous product against a monopolistic supplier. That product is aligned with the future of motoring (lighter, greener, more suitable to EVs etc) in a market that will only get bigger as CCB start appearing on non-supercars. They have hooked some major fish already. The new board members and NEDs have some impressive credentials and I would also give David Bundred/ Kevin Johnson some credit for realising the need for them when it is always easy to cling on yourself.
You're correct that the company is not "new", but it is still young in its growth trajectory. That might be the result of a preference to grow slowly and deliberately without basically going for broke too early on.
I repeat that this is a company with 60% gross margins with a market leading product and only one competitor. Nothing is certain but that is a great investment opportunity for the patient.
Was amused by your comment about nothing happening here till "2027/28/ or even later". Presumably you are discounting the fact that the share price has barely budged in the previous 10 years, apart from cash raises? Huge disconnect between the commercial progress which while painfully slow, has finally gotten us a clutch of OEM customers and contracts, and the share price. It is not as if this company has just been around a short while and still finding its feet. The problem is that management's credibility has taken a huge knock over surprise fund raises, slippages in profitability, and concerns about cash position. Ultimately these are failings of operational management (and not just bad luck).Let's hope Isabelle and the COO can help instill the plc culture needed to change perceptions. IMV, the clock is ticking. If they can't deliver significant meaningful progress over next FY reporting period, they will be vulnerable to an opportunistic bid.
S/o is reducing
Hard to know if there were leaks ahead of yesterday, or whether it was just a combo of market makers & traders positioning ahead of an uncertain set of results. That said, SCE really does need to up its game in terms of its interactions with the public markets....hopefully the addition of some experienced leaders in CFO and COO will make this a far more professional operation:.
Exhibit One: Website: totally unfit for purpose if it is not up-to-date. CFO and COO appointed early Sept, and still not on the website., day after results! Do the advisers or chairman or CEO ever actually look at it? Who the hell is managing this, given it's the first port of call for investors.
Exhibit Two: communications strategy : they need to become far more professional and savvy in how and with whom they communicate if they want to expand the share register, and build a bigger external profile.
Exhibit Three: share price chart shows a continual left-to-right descent. Markets hate surprises ; management has done a very poor job of managing expectations and with messaging, leading to a significant loss of credibility.
100pc agree
So that highlights from the 6m announcement for me:
“Operating loss1 increased to £4.6m primarily due to £2.5m of non-repeatable outlays to overcome technical challenges.
H1 technical challenges NOW OVERCOME (my emphasis).
Cash at 30 June 2023 was £4.5m (31 Dec 2022: £14.9.m)
Additional furnace capacity in place and increase in proprietary know how. (So we “own” the IP how to make these furnaces work?)
Strategic investment programme for c.£75m capacity progressing well, with capital expenditure of £4.8m (H1-2022: £2.8m). Phase 2 target of £50m capacity will be available in 2024
Strong order book unchanged
Healthy prospective contract pipeline increased to £420m”
They are expanding capacity to £150m. Yes, we have had bumps in the road. But this has always been a share for what happens after 2027/28 or even later.
Believe in the product. Believe in the people who developed it. Hope the changing management team can tweak the system to maximise the £££.
This is still a company in a duopolistic system with c.10% of the market, top-level OEMs as customers, 60% gross margin etc. Repeat, 60% gross margins with a market leading product and only one competitor!
I’m as disappointed as anyone in the share price but on many levels this is an astounding company to be able to buy at this price if you can hold for 10 years.
No, but the optics wouldn't be good. No need to give ammo to the bear case. As I said, I'm v happy with bod purchases at higher prices.
Negatively word an RNS - never happened on my watch I assure you.
BOD members put in £300,000 in July at 32-33p. I am happy with that.
I'd rather they didn't buy the dip, because it creates the possibility they may negatively word an RNS to take advantage financially. I would rather there be an incentive to get the sp back to break even for them.
Someone (or some-thing) is certainly taking advantage of the dip though...
It would be a sign of confidence if we saw concerted buying from our management. NEDs have stepped up regularly. Time to see if Johnson and Isabelle are prepped to put money in...if not now, when?
Zeus 2023 rev forecast
H1 -£3.3m actual
Q3 - £3.7m
Q4 - £6m
Total - £13m
I hope they are right.
Most of the equipment to hit £50m run rate has now been installed per Zeus.
H2 rev guidance has been dropped, now forecasting breakeven in H2 rather than profit.
Clearly the ramp-up is still progressing slower than they would like. They are running low on cash.
Q4 will be crucial to proving to the market they can deliver and either avoid raising cash or doing so at a reasonable rate / discount. Fingers crossed.
Shareholders should not underestimate the complexity and difficulty in ramping up production, particularly as we are the first company other than Brembo to do this. This complexity will help protect from competition and mean margins will stay high for a good while.
When we start to deliver, this will be a very valuable company with unique know-how.
Agreed ….and I’d like to hear them explain their marketing strategy if s/potential customers, shareholders & the media have no idea who their customers are. Utterly daft in the digital age
Finncap and Zeus are pretty much in agreement about slightly reduced margins due to inflation (66>60%) with the subsequent impact on profits . Outside of this probably the main concern which will weigh is the comment at the end of Zeus's note -
'We understand management are considering new sources of finance, should this be required.'
It probably explains the share price weakness and would be a good point for the management to address in their presentation.
Tend to agree ….Zeus have cut their numbers and target price which doesn’t help; can’t see it drifting much lower but if it does will pick up more.
The cash situation is a concern, however the blunt instrument of a dilutive cash call on s/holders may have been Route One previously, but given OEM support and the growing order book, and with a fresh CFO, I would though that there are a range of other routes available to them that would reduce the need for a call on s/holders, and so I expect the sp to bounce in due course, helped by a couple of decent contract announcements before year end.
Memo to Board: high time Bundred dispensed with the fiction around not naming the customers. Doesn’t he realise the power of brands? Why on earth aren’t we harnessing that ? Utterly crazy, if Aston Martin, Lucid, Koenig, etc are customers NOT to release the names
It feels like the bottom has been reached and SCE is now (finally) on the upswing. The market probably won't like the today's bare numbers (and the market isn't really forward looking at the moment), so we might need to wait for the next TU/or FY results/significant contract wins, before seeing any real improvement in the sp.
SCE won't need cash for keeping the lights on, but may need to raise to fund the expansion. Hopefully this can be done at a later date either through loans or at least waiting for a recovery in the sp before raising.
Encouraging signs for me are Janus Henderson increasing their stake recently (at 27p) and management putting a lot of their own money in at 32-33p.
Not sure what all the insiders were fretting about, these results are as expected after the resolved H1 issues. Good to see that despite it all, revenue has continued to grow.
With reiteration of a further contract win to be announced, PCP up to £420m and H2-2023 revenues expected to be significantly higher it looks like Knowsley is starting to come right.
Frustrating update, but not enough to throw the baby out.
My main concerns are clearly cash erosion and SP going so low as to invite takeover bids.
They must show Q4 profitability, without a cash call, for me.
Unless I am missing something, then all is as outlined in the trading update 2 month ago. It seems to be proceeding as planned with no further glitches over the past couple of months.
I guess it will take another half years results to cement the confidence of investors although a further contract award as potentially flagged will do no harm.
Worth pointing out Bundred and Johnson have raised £40.4m from s/holders just since April 2020 !!! With current mkt cap of £74m that funding = 54% current mkt cap.
If thes boys can’t get their act together (and soon), then PE or a major listed materials group is going to do it for them. You don’t have to be a PE guru to work out that s/holders have spent 10s of millions to back the tech to get to this point! With proven tech, growing demand, a big order book, & Tier One customers ST should be flying. The fact they aren’t is a real cause for concern, as they look a slam dunk for a bid
That’s a concern of mine too! We know the production process has stuttered and been rejigged several times. So what’s COO’s take? We also know that financial forecasting has t been their forte ( remember the surprise profits warning and also fund raise?), so let’s hope Cunningham didn’t leave a mess behind that CFO decides needs restating. One hopes that these two understand that investor confidence remains fragile out there. We haven’t had a decent uncaveated statement out of the company for ages!
The main uncertainty exercising the market right now is getting over the cash flow hump. The company reckons they’ll have around £2.5M in the bank by year end 31/12. Once the market can see the company becoming cash flow positive with full production and not needing any further cash raise in the meantime, then the share price should get cracking. Until then, I hope the interim update next week demonstrates production moving ahead as forecast leading to a full year revenue number of £16M.
The new CFO has been in place for two weeks so will be getting her teeth into the numbers as we type. New COO likewise. Let’s hope they haven’t found holes in the processes!