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Hi Olly,
Having looked at the aggregation of revenues on pages 52 & 53, I must concede that you are absolutely correct that the non- WiseWave portion of organic growth is actually $6.7million. The 72% growth in non-China revenue includes the revenue generated by the acquisitions.
Noted that Synopsys and Cadence don’t have manufacturing aspects to their custom silicon.
I also get where you coming from regarding P/S value but the fact is the revenue has been generated so it has to be included. It’s effectively reduced in significance in the forward revenue P/S assessment.
Thank you for pointing out my error. This is greatly appreciated. It is I suppose a fair comment to say the organic growth of the non WiseWave revenue is a tad disappointing at around 13% growth. Still as the optimist, at least its some growth.
"Overall, there's no way I'm selling at this price. It's just too cheap considering growth prospects as you have pointed out. Although I must say I'm not sure about the P/S comparisons you're using: first of all you should back out the $30m WiseWave Rev as we agreed, also comparing to e.g. cadence and synopsys probably not entirely appropriate considering new involvement in delivery of custom silicon post open-five acquisition."
Alphawave completed an IPO just two years back and have made significant acquisitions therefore there’s a load of one-off costs that are skewing the earnings and profits. That's the reason I use P/S valuations for comparing with other more established peers rather than use P/E.
If I excluded Synopsys and Cadence from the P/S comparison the average P/S doesn’t change that much. It reduces from 8.7 to 8.5. And the average forward P/S reduces from 7.8 to 7.4 (I used analysts forward expectations for the stocks I was comparing with). FWIW, I think comparing with Synopsys and Cadence is appropriate. They too are involved in custom silicon to some extent are they not?
I don’t think one should be knocking off the WiseWave revenue. Revenue is revenue doesn’t matter where it comes from. In any case, when I did the 12 month forward comparison I used Alphawave’s 2023 guidance revenue which already effectively takes account of a reduced revenue from WiseWave. Alphawave’s forward P/S worked out at 2.5 compared to the average of 7.8 (or 7.4 if you want to exclude Synopsys and Cadence). Therefore on the forward revenue comparison AWE are cheaper by two-thirds.
"Subsequent to its acquisition, OpenFive generated revenue of US$70,827,000"
"Subsequent to its acquisition, Precise generated revenue of US$2,251,000"
Yes, but after consolidation adjustments the total revenue from these acquisitions is reduced to $66.1million as stated on pages 1,2 & 4 of report. So the organic revenue for 2022 is $119.3million.
“Then we can take the increase YoY in revenue from Verisilicon and WiseWave partnerships of $23m, and add that 2021 Rev to arrive at $113m (90+23).”
Not sure where you are getting these figures from but in 2021 the total revenue was $89.9million and is made up of $46.9million non-China and $43.1million China revenue.
The 2021 revenue from Wisewave/Verisilicon (again as stated in p2 of report) is $29.8million and increased to $37.5million in 2022. The non-China revenue increased from $46.9 million to $80.7million (as stated on p4).
That’s a 72% increase YOY on non-Wisewave/Verisilcon revenue.
It’s good that you are sceptical and hope you maintain it. I'll admit it’s easy to get carried away.
Hopefully though you won’t feel quite so disappointed now with Alphawave’s Silicon IP non-China portion of the organic revenue.
Just for absolute clarification...
2021's revenue was $89.9m and 100% organic as it was before the acquisitions.
If organic growth (i.e excluding the acquisitions) was 33% then 2022 revenue works out to be about $119.5m.
To cross check that, the report states $66.1m revenue from OpenFive and Precise ITC and total revenue is $185.4m.
So 185.4 - 66.1 = 119.3. So that broadly matches.
The $119.3m 2022 organic revenue is made up of $37.5m from WiseWave joint venture and $81.8m for the remainder.
The report states that non-china revenue in 2021 was $46.9m and therefore china revenue about was about $43m.
(i.e 46.9 + 43 = 89.9)
The report also states that non-china revenue for 2022 was $80.7m , which represents 72% growth.
A slight mismatch between $81.8m and $80.7m but clearly, however you look at it, the increase in organic revenue excluding WiseWave is about 33.8 million which is a heck of a lot more than $6m.
Hope that makes sense to you.
Hi Olly,
I'm not able to verify exactly where you are getting only $6m increase in revenue outside of WiseWave/Verisilicon agreement and I don't really have the time to have another detailed dig through the accounts.
However, I'm wondering if you are just referring to the increase in Alphawave's standalone revenue (i.e not including the revenue coming from Precise ITC and OpenFive)? According to page 20 of their presentation slide (from 19th May), they state 33% of organic revenue growth and revenue outside China of $81m (a 72% increase on last year) Their Year on Year increase of North American revenue is 36% and for the APAC region they claim 84% YoY increase as well as generating revenue from the EMEA region for the first time. This is actual revenue not bookings by the way and I believe is due mainly to the acquisitions.
If you look at it from the perspective of bookings you can see (from page 19 of the presentation) that in 2021 China bookings accounted for 64% of the total, and North America 29% whereas for 2022 China bookings is 39% and North America now 46% with a new 9% from EMEA region. If I have recalled correctly from the calls, I believe the CEO indicated that most of the backlog will translate to revenue within 12 months with some bookings only taking something like 2 or 3 months.
Personally, I have never been counting on the WiseWave revenue. I only became interested in Alphawave from January of this year purely on account of the growth prospects in the connectivity sector together with the company's strategy of focusing on the high end product segment of that market, and for which they are currently the global leaders.
Having read the IPO prospectus, I can understand why anyone might feel disappointed with how the Wise Road Framework Agreement has panned out. This was meant to have been a $400 million investment of which Alphawave's 42.5% stake meant they had a commitment to invest $170 million. The geopolitical situation with China effectively forced the company to change its strategy with China such that they intend by end of 2025 to no longer have a stake in the WiseWave joint venture.
Of the $467.6m current backlog, less than 15% is to come from WiseWave.
I don't have significant concern for the WiseWave revenue even if it ends up being a bit of a liability because it is clearly being overtaken by the growth from all the other revenue streams. They have indicated that China revenue in the future will represent around 10% or less, yet they remain on course to report around $360m total revenue for this year. They anticipate $500m by 2025 and more than $1billion by 2027. It remains to be seen if these targets will be achieved of course but there's little doubting that the revenue growth is heading with significant pace in the right direction.
In regard to your comment about the Banias Labs acquisition, this for me is one of the main reasons (together with custom silicon and chiplets) why I'm invested here. The Banias Labs acquisition is a classic risk reward investment where there is considerable potential upside to the reward.
To appreciate this you need to understand where most of the future growth potential in the semiconductor connectivity sector is going to be.
That growth is going to be in opto-electronics especially in data centres where a 36% CAGR is expected over the next three years.
Don't forget that Alphawave have already secured an agreement with a leading North American hyperscaler (thought to be Amazon) where I understand they are developing a product roadmap involving coherent DSPs and opto-electronics that will result over the next few years in the shipping of at least $300 million and is expected to be significantly more than that.
When you own a business (i.e Banias Labs) where one of its key customers is also one of its major competitors (i.e Synopsys), it's an indication that you are ahead of the game...
[https://semiwiki.com/ip/327703-synopsys-accelerates-first-pass-silicon-success-for-banias-labs-networking-soc/]
It does come with risks though. Competitors are also hard at work developing new coherent DSP products but I think at the moment there is so much growth anticipated that there is still plenty of room to accommodate competition without spoiling the reward potential.
If Alphawave hadn't acquired Banias Labs or other similar outfit where would you have expected them to invest the money to secure growth for the business?
I hope this helps.
Hi ollycoto21,
There are 95 references to WiseWave, 61 references to joint venture and 33 references to VeriSilicon in the report. Unravelling that lot to make sense of it admittedly takes quite some effort.
My unqualified interpretation is that gross revenue for 2022 from Verisilicon was $3.2 million and revenue from the WiseWave joint venture was $58.2 million. After adjustments the combined revenue was $37.5 million.
The report on page 75 provides the following note that clarifies the split in revenue:
"All revenue from VeriSilicon and related balances are in respect of transactions signed with VeriSilicon prior to the VeriSilicon reseller agreement moving under WiseWave as master reseller effective November 2021. All revenue and associated balances in respect of transactions signed with VeriSilicon since that date are now recognised through the WiseWave joint venture line."
They assigned the VeriSilicon reseller arrangement to WiseWave in order to consolidate the China activities under a single entity.
Hopefully this helps to answer your question. If you need further clarification I would suggest dropping an email to their investor relations. They are usually very responsive.
It’s worth pointing out that:
2022 revenue from China was about 57% of the total revenue at nearly $105 million and the WiseWave portion of that revenue was $58.2 million.
Joint Venture income is a five year contract that expires in 2026 and Reseller fee income is a three year contract that expires in 2024.
Alphawave currently own a 42.5% stake in the WiseWave JV and are contractually committed to $170 million investment of which so far, they have invested $31.4 million. However, WiseWave do not anticipate requiring the full commitment and are likely to undertake an external financing round in the medium term instead. AlphaWave are not expecting to make further significant contributions in the future. They intend to sell their equity stake in WiseWave over the next two years and they expect a gradual decline in China revenue to about 10% or less and will be offset mainly by the increase in North American revenue. This is essentially all part of Alphawave’s deliberate simplification of the ‘China go-to-market’ strategy and is due to the change in the geopolitical and macroeconomic situation in the last couple of years.
You having a laugh Glowacki? Where’s the laughing emoji on here? Even with the ‘downgraded’ revenue, it still represents a CAGR of 185% over a four year period. Its corresponding operating profit growth is more than 150% CAGR. Please show me another stock on the LSE that has achieved this kind of growth. Expecting a halving of the share price when it’s already nearly half the value of its NASDAQ peers? Well if it does I’ll be picking them up at that price.
"According to John Lofton Holt it could take from a few hours -> a few days to lift suspension"
Yes he said a few hours to a couple of days but it can sometimes take longer than that.
For comparison Carr's Group who suspended their shares on 4th January eventually released their audited results on 23rd March (a much longer period than Alphawave). FCA granted trading almost a week later on 29th March.
Yes still suspended. It can sometimes take more than a week to process the application to the FCA to lift the suspension.
Thank you for your words Barcap.
I hope it works out too but I’m well aware there are risk factors that can invariably come out of the woodwork in ways that can’t easily be guessed which is why it is important never to invest more than one can afford to do without and to maintain a sensible level of diversity.
In the early eighties I was the proud owner of a Sinclair ZX81 with 1k ram connected to a cassette recorder and a black & white tv. I had much fun with it learning BASIC programming code. At college we had a computer lab with a row of BBC Acorn computers. Pity I didn’t follow through with my interest to study in computer science (I think it was called software engineering back in the day). Instead I did a mechanical engineering degree for all my sins.
A search of the web earlier seems to suggest that Acorn went on an unlisted market at £1.20 a share which by February 1985 got suspended at about 23p a share. Then if I recall correctly Olivetti came to the rescue in June 1985 and Acorn started trading again. Eventually the shares dropped to about 9p before suffering another suspension. They eventually made a recovery with the introduction of the Arm chip and was acquired by Arm Holdings. Presumably you got a significant premium on your 8p shares?
Let’s see what tomorrow brings for better or worse.
Regards.
Good advice Barcap, which is why thorough DYOR pays...
Pick your stocks when they are at great discount and demonstrate significant growth prospects.
With AWE you have a stock that has increased its revenue and operating profits year on year since its founding in 2017 at the rate of 189% and 161% CAGR respectively. It's currently half as cheap as it NASDAQ peers and two thirds as cheap based on its 12 months guidance earnings. All this in a sector where substantial growth is expected for at least the next decade. In 2020 it was ranked outside the top 10 in the world among silicon IP companies, it climbed to 8th in 2021 & 2022, and now holds the number 5 position behind Arm, Synopsys, Cadence and Imagination.
Sit back and be patient - one of the greatest failings of private investors is patience and listening to people who spout certain nonsense about stocks. Have a nice day.
You've already got a 50% discount here not taking into account the growth prospects.
That's roughly the same discount you have on Harbour Energy only the growth prospects there are more of a lottery.
In the IPO they set out seven strategic objectives. One of these was to ‘‘expand the Group’s global operational footprint” and within that objective one of their intentions indeed was to set up a “UK design team with a R&D headquarters in Cambridge, and the potential acquisition of design teams or key technologies”. While the Cambridge R&D HQ plan does seem to be on the backburner for now, they have at least accomplished the acquisitions of OpenFive, Precise ITC and Israel based Banias Labs as well as opening a new office in Pune India.
Frankly, I’m not that fussed about the Cambridge R&D HQ plans. As much as I would love to see Alphawave play a role in reviving the UK’s declining semiconductor industry, as an investor, I’m more interested in them keeping their focus on maintaining a highly efficient and competitive business with low staffing costs and overheads. I don’t think a Cambridge R&D facility comes cheap and besides there’s plenty of high calibre talent to be found in places like India. Perhaps if the UK government can provide reasonable incentives then the UK plans could be revisited.
I think the institutions that participated in the IPO; Black Rock and Janus Henderson have already paid a price for their involvement. It was their own responsibility to go ahead at that IPO price.
As for the government, if they want to revive the UK’s semiconductor industry then they’re going to have to provide incentives. Parliament committee for Business & Trade launched an inquiry last year, and notably Alphawave are absent from the list of submissions to the report, but that aside, we are still waiting for the government’s response. They should do something similar to the US example of the CHIPS and Science Act which promises a $52.7 billion investment, perhaps something along the lines of $1 billion investment. If they did, I would expect most of any investment would go to the compound semiconductor sector which the UK specialises in.
Barcap, it seems that at least you have faith that they'll start trading again! That's a positive!
The opportunity to pick up shares at a bargain price can only happen when the shares are actively trading.
“..why is this a piddling little company of just £700m market cap that's got itself suspended at 100p, more than 75% below its IPO price of 410p which was just two years ago?..”
Well let’s suppose it was at £4.10 right now, would this be overpriced based on current performance stats?
This would mean a market cap of £2.87 billion (US$3.57 billion) and based on $192.41 million revenue for FY2022 would give us a price to sales ratio of 18.6.
Compare that to the average P/S ratio of 8.7 for its 8 closest peers in the silicon IP sector, then yes you could argue that it would be overpriced by more than double.
Alphawave’s actual current P/S is 4.6 so arguably it is presently undervalued by 47% and if the P/S ratio were allowed to match the peer average then the share price ought to be at £1.90.
Why is it sitting at 100p? Well, the reaction to the suspension pushed it down from £1.20 (aided perhaps by Vikram Kumar’s Kuvari Partners who added approximately another £700k to their short at the start of trading on 28th April. But primarily, it was pushed down from its IPO price thanks to a shorting campaign effort of several hedge funds / small institutions following the Alphaville article of Sept 2021. The article itself was merely a trigger to start the shorting, while the actual content of the article was largely irrelevant. Shorting often tends to get overdone and it can take awhile for a share to normalise to where it should be.
Why did they short it? It was clearly very overvalued. At the IPO in May 2021 the last reported revenue was $32.9 million for FY2020. This would have given it a P/S ratio of about 116! The silicon IP industry average at that time was about 20, so by this metric Alphawave were potentially overvalued by nearly 6 times compared to its peers. (remember semis and tech were leading the market back then and therefore perhaps even a little overpriced themselves).
Why was the IPO itself overvalued? At that time, semiconductor plays were ‘hot’ and leading the market bull run following the collapse caused by the pandemic. The IPO organisers would have gauged the mood and since semiconductor research outfits were (and still are) projecting massive growth for the decade ahead then clearly institutions like Black Rock and Janus Henderson had no problem buying into that mood and were willing to value new starts like Alphawave on the forward growth expectations.
Incidentally, the 8 silicon IP industry peers I used for my P/S valuation assessment are Synopsys, Cadence Design Systems, CEVA, Verisilicon, Rambus, Credo, Marvell and Broadcom and all based on the latest earnings reports available. I discounted Taiwan listed eMemory Technology as they currently have a high P/S which would have upped the average to 12.3.
"The AWE CFO was/is a sophisticated individual and is very financially aware.
He's worked mainly in the high end banking industry for big multi national banks.
He left Barclays to come to AWE as CFO.
Some have mentioned he's inexperienced but that simply isn't true."
As BrokenSmoke said, we can only speculate. I generally agree with your points about Daniel. However, for all of his excellent background and experience in the banking industry particularly in the technology investment sector, he does not have any past experience as a CFO of a public listed company other than the time he's been with Alphawave.
He's still the CFO by the way until the audited results are published.
Alphawave are now looking for an experienced CFO who can carry it through its next phase of substantial growth.
“ However, I don't think the CFO getting sacked after suspension is normal at all. ”
Oh? Common enough I think you will find.
Look at Carr’s Group, the example I just gave.
Neil Austin was CFO at Carr’s and was stood down from the board on 21st February during the suspension.
Personally, I think looking at other examples of shares that have gone through suspensions is no bad thing and there are lessons that can be drawn from them. Obviously, share suspensions often happen for companies in some form of distress and the outcome is often one of disaster for shareholders.
However, it certainly is not always the case. Carr’s Group (a premium listed company) is an example where audited results (for year ending 30 Sept 2022) were delayed due to a disposal of a division within the Group, and a change earlier in the year of auditors lead to complex issues that meant a separate audit had to be carried out. Carr’s Group announced the anticipated possible delay on November 22 and warned that they expected they would have to suspend trading from 4th January. With no further prior warning, the shares were suspended on 4th Jan with an update indicating results would be issued sometime later in January. On 26th Jan they provided another update indicating a further delay and anticipating a return to trading by 14th Feb. On 10th Feb they issued yet another update indicating a further extension to the audit and that results would be issued no later than 27th Feb. On 21st Feb, the company decided to issue a trading update revealing unaudited full year results (but not classed as a preliminary statement of annual results) indicating [mediocre-ish] performance in line with expectations. On 21st March the company provided an update indicating audited results would be published on 23rd March. Results were finally published on 23rd March and the company applied to the FCA for reinstatement of trading. Trading was finally reinstated on 29th March.
So what happened to the share price during this time?
On 22 November, when the delay was announced the shares dropped from 109.5 to a low of 100.0 but finished the day at 105.75. They ended the year higher at 124.45. On 3rd Jan they finished at 121.50 prior to suspension. It re-opened at 115.0 on 29th March and finished the day at 121.50 again. Today it trades at around 129p.
Clearly, there was no serious panic, and Carrs Group returned from suspension more or less unharmed. There’s no reason to think Alphawave will suffer any dire consequences following its return from suspension other than perhaps some temporary volatility.