RE: New research on interim results31 Jan 2023 10:51
finnCap
Interim results – strong revenue growth
Kromek reported interim results with revenues up 44% to £6.8m, an EBITDA loss of £2.7m and period-end cash of £1.0m. A record order book and good visibility over our FY 2023 revenue forecast of £18m (c.91% of which 84% is already contracted or shipped) should still deliver a positive EBITDA in H2, but given inflationary cost pressures and a negative FX impact on translated US costs, it is unlikely to offset the H1 loss as previously anticipated. We reduce FY 2023 EBITDA and PBT by £2.4m and £2.8m to -£2.2m and -£7.8m, respectively. Given visibility into FY 2024, we introduce forecasts calling for revenues of £21m and EBITDA of £1.0m. Near-term catalysts (e.g. a supply agreement with a major OEM in medical imaging) are expected to drive the share price, the prospect of which gets ever closer, evidenced, in our opinion, by the fact that the company is now working with eight tier 1 and tier 2 OEMs in the CT/SPECT imaging market. As the only independent commercial supplier of CZT, we believe that these engagements should transition to long-term supply contracts, the timing of which is determined ultimately by the OEM’s NPD development timelines, thus creating substantial value. We reiterate our 27p target.
- Interims in brief. Revenues increased 44% to £6.8m. Adjusted pre-tax loss was £5.6m (vs.£3.0m), resulting in an adjusted fully diluted EPS of -1.1p. Cash at 31 October 2022 was £1.0m, with net debt of £8.3m. Cash currently stands at £1.3m, given the strong Q3 FY 2023.
- Key metrics. Product sales grew 73% (+£2.8m) to £6.6m, with R&D revenues of £0.2m (vs. £0.9m). Of this we estimate Advanced Imaging sales were c.£3.4m, driven by its major SPECT OEM manufacturer, with CBRN product sales of c.£3.2m. Lower gross margins (product mix and FX) and higher costs (inflation and FX) resulted in an EBITDA loss of £2.7m, which compares with -£0.6m in 2022 (-£1.9m if we exclude Paycheck Protection payments from the US government).
- Outlook. With a strong/record order book and good visibility for H2 (c.84% already contracted or shipped, 5% going through contract negotiation, 2% being provided by its regular repeat order business and the remaining 9% or £1.6m expected to be closed by known opportunities), we are leaving our revenue forecasts unchanged. The prospect of additional supply contract(s) with medical imaging OEMs is coming closer. The fact that Kromek is the only independent supplier – that eight tier 1 and tier 2 OEMs are now working with Kromek CZT detectors testifies to this.
- Forecasts. Unchanged FY 2023 revenue implies £11.2m in H2 2023. This is a similar H1/H2 split as in FY 2022 (62% vs. 61% In H2 FY 2022). The higher costs incurred in H1, however, merit a reduction in EBITDA (-£2.4m to -£2.2m) and PBT (-£2.8m to -£7.8m). We introduce forecasts for FY 2024, given the growing order book, which provides visibility into 2024, calling for a 17% increase in revenue to £21m (product
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