The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
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May be wrong, but are we not due a trading update before the end of the month, so either either tomorrow or early next week. There appears to be a bit of buying at this level, so maybe the update will be positive and no mention of another cash raise.
I just read the Master Investor report. Nothing we don't already know and the unambitious price target is not accompanied by any timeframe. Perhaps if you're on a 1-3 month time frame a potential 20% gain is a target. However, from 25p I would be looking to hold for many years and to multi-bag from here.
But the positive thing is that if articles like Master Investor's drop into investors' inboxes it will hopefully increase the general interest out there.
Not exactly ambitious,....but at this point I'll take any positive vibes out there. What would be good nmow is to see our new execs writing some cheques for shares
By Mark Watson-Williams, who has an initial target of 30p which he states ""will be left well behind".....
Https://masterinvestor.co.uk/latest/surface-transforms-definitely-not-to-be-stopped/
He concludes:
"This group has such incredible scale-up ability and prospects, unfortunately they are not as yet being recognised in the group’s share price at the current 23p.
Gradually the brakes on the group’s share price will be released and then my own Price Objective will be left well behind.
I now set a new Target Price of 30p, which I believe will soon be easily achieved."
From 100p per their latest research note - here's extracts from their summary FYI:
"£100m of new activity secured
Surface Transforms has announced that it has been selected as a Tier 1 supplier of its market leading ceramic automotive disc brakes to the global automaker described as OEM 10. The Group will be the sole supplier to this existing customer for an extensive range of new electric vehicles. The lifetime revenue for discs for this range of vehicles is expected to exceed £100m, with production commencing in 2027e. Given that start of production is beyond our current forecasting period (2023e-2025e) our estimates are unchanged at this time. That said, we lift our medium-term DCF-based valuation to 120p from 100p. Surface Transforms is trading on a 2024e EV/Sales metric of just 1.9x vs. a UK growth companies industrial technology sector metric of 2.2x. We believe this award is a significant endorsement of the Group's technology and the ability of this management team to fully implement the ramp up in production currently underway.
Major new business award - Surface Transforms has been notified, following a fully competitive process, that it has been selected to supply more than £100m of brake discs for a new and extensive electric vehicle range. The Group will be the sole supplier of the carbon ceramic brake disc on both axles for a new vehicle range from OEM 10. Fit will be standard on some models in the range but an option on others. The manufacturing plan should see series production start in 2027e and run for seven years. The customer has been working closely with Surface Transforms during a period of well reported ramp up challenges (see H1 comments below). OEM 10 is clearly happy to award substantial new and follow-on business in this context. "
"Zeus forecasts and valuation -
The start of production for the new OEM 10 activity (2027e) is beyond our current forecasting horizon (2023e-2025e) and therefore our estimates are unchanged at this time. We will update capex for Phase 3 capacity expansion (which may impact 2024e-2025e) with further announcements from management. That said, our DCF based valuation takes a more medium-term approach; with secured orders now exceeding £390m (from £290m) we lift our valuation to 120p from 100p. "
Thanks Washerupper, see there was a delayed £70k sale which was the cause of the drop along with another few trades so a lot of selling, guess someone expected a big rise after the news and decided to sell up. Don't think there will be massive dilution, but a small raise may be needed
I think you’ve done well. With capacity and orders in place to achieve profitability, products in demand and strong margins, this should see a significant re-rating over the next 3-6 months. This assumes that there is not a significant dilution to raise capital, but it shouldn’t be needed.
Seems strange that it is dropping today by so much with little apparent volume and after yesterday's good news. Have not been invested here for a while as thought cash worries might drive the share price down which it has and I guess a small raise may still be required, but at 24.88p which I paid for about £4k worth of shares today, the risk/reward profile for a 2 year hold seems way overdone
It should be pointed out that Cavendish only retained the same forecast price because the start of this new contract falls beyond the time period of their current target price.
What happened to this companys contracts with us military.
rivaldo do your magic and see if they are still supplying them please
Worth noting that today's contract award is for "a range of new electric vehicles".
Cavendish (Finncap) have retained their 120p target price. They summarise:
"Contract from major OEM boosts order book by >£100m
The company has gained its largest supplier nomination contract to date, worth over £100m. This is not only significant for its size but also because it is with one of the largest global automotive OEMs. This boosts the value of SCE’s lifetime contracts to over £390m. This is a major endorsement of the company’s unique product offering and its value to OEMs. Today’s award is for a range of new EV models. We make no changes to our forecasts, as production is scheduled to start in 2027, beyond our forecast horizon. We see significant upside to the valuation, with the shares highly attractive as they are yet to reflect the potential for SCE to be a future large-scale tier-one manufacturer with its unique carbon ceramic brake discs. Today’s news is a big endorsement offering significant potential upside in this scale-up opportunity that would be realised as progressive milestones are achieved."
"Valuation.
We see substantial upside to the valuation over the next few years as SCE scales up capacity to be a large-scale manufacturer of its unique carbon ceramic brake discs. With recent technical glitches now overcome, the shares offer a unique opportunity. We retain our 120p TP, which is based on a £75m revenue footprint being achieved in 2025, resulting in a target P/E of 15x. Further endorsement by a world-leading OEM provides testament to SCE’s unique and valuable product attributes."
Share price still at 12-month lows and whilst marked up 13% is still below sp level of 4 weeks ago. Time we saw management team investing their own monies (not the non-execs) now as presumably they are out of close period now with this announcement.
Now they have to convince investors that (1) the oft-mentioned transformation to generating profits is upon us (2) there wont be another crucifying fund raise that crushes the life out of existing s/holders (3) no more mishaps from management.
Management team still has a lot to do to restore confidence among investors
Excellent news. Start of production in 2027 I see! The sequence of these deals is important as well.
Surface Transforms Tech. always knew they had a great invention that would definitely ensure the company had great prospects. I'm surprised it had not been bought out. They are probably extremely pleased they held out for a large contract.
Good luck to all long term investors. GREAT INVENTION.
Superb news - a £100m contract win from OEM10, "one of the world's largest automotive OEMs".
And won in an "intensely competitive" process, no doubt against Brembo.
Yet more superb validation from a customer who will have examined the product and SCE's financing and production plans in huge detail.
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.