Paul Scott - Small Cap Value Report - MAY 1ST2 Aug 2020 14:48
Full year trading update & COVID-19
Kromek (AIM: KMK), a worldwide supplier of detection technology focusing on the medical, security screening and nuclear markets, provides an update on trading for the 12-month period ended 30 April 2020 and its business response to COVID-19.
This story has been around for a long time. As you can see below, it is making progress, but 7 years of losses, and a tripling of the share count over that period, must be trying the patience of even the most optimistic shareholder.
Profit warning -
Kromek was doing OK until end Feb 2020
Mar & April saw impact from COVID-19
2 key contracts delayed into FY 04/2021
FY 04/2020 revenue £14.5m (well below £18.5m forecast)
Adj EBITDA breakeven - but this translates into adj LBT of -£4.6m, which looks pretty grim to me
Multi-year contracts, which it reckons gives good visibility
Making ventilators - no indication of profitability of this sideline
Cash of £10m, debt of £5m, hence net cash of £5m
Cash preservation measures look significant -
...ceasing all discretionary capital expenditure; curtailing all travel and non-essential spend; and, securing a short-term rent concession on the Group's leased properties. These measures, along with others in the pipeline, are expected to reduce monthly running costs and cash outflow, generating annualised savings of approximately £3m.
Outlook - too uncertain to give guidance. Board confident it can withstand the current situation.
My opinion - I'm surprised that the market cap is as high as £60m, given the poor track record - being unable to break into profit, after a long time trying. Maybe it could succeed in future, but I have no way to assess the likelihood of that happening. Therefore, for me it would only be a punt, not an investment. Hence it's not of interest to me. It's probably only going to appeal to punters, or experts in the sector who are able to determine if the products are any good or not. The 58% gross profit margin suggests its products must be pretty decent, to have some pricing power.
FYI - PAUL SCOTT experience/background....
Trained as an accountant with a Top 5 firm, Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too ****y, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.
Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for Stockopedia
https://app.stockopedia.com/content/small-cap-value-report-fri-1-may-2020-bdev-crpr-kmk-600663?order=createdAt&sort=desc&mode=threaded
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