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What’s the market going to make of the next contract win when that gets announced? We already know from recent RNS updates that their US pipeline is getting stronger all the time and that there is at least one more material contract being finalised, which will likely be worth $10’s of millions (potentially up to $100m) on top of the c.$200m they have already secured as future revenues. How on Earth would the market react to that kind of news?

Going to be an interesting few days / weeks here - company currently valued at around 1% of its contracted future order book. Whether it’s EM or somebody else, I can’t see the market ignoring that. Somebody is going to make a killing here. Only question is whether the market lets that be ROX, or whether others want a slice of the pie too.

Edward, just to clarify, the nominal / face value of the shares has nothing to do with the conversion rate - all of the shares they will acquire will be at 10p, so that is not a bad deal for shareholders, in fact it’s pretty good, as the total dilution if everything goes through is only about 50%. And the company then has £8.5m in cash that it didn’t have previously, so that offsets the dilution, as the company can then go forward and prosper. The big concern here is the delisting and the degree to which small shareholders are protected (or not) once the company goes private. That’s what caused the drop on Thursday.

All good questions valueseeker, hopefully we'll get some answers over the coming weeks. It also seems very odd to bury the delisting in the detail of a funding RNS, as if it's just a minor formality.

Been thinking about yesterday’s announcement and in particular the somewhat hurried additional CLN, the extensions to the exclusivity angrrement and the irrevocable undertakings that Curren has made. I couldn’t understand why the Board and Curren would do that, as it effectively commits them, but not Rox, to the fundraise and closes down any other sources of finance.

I think, however, there is one scenario where it would benefit all parties to do just what they have done - a takeover bid from another party.

We all know that SND market cap is only a fraction of its true value, brought about purely by the cash position. With support from ROX, the company’s finances are transformed and the valuation would likely rise very significantly - let’s say to a conservative £50m (it’s been at that kind of level previously, and has built its order book considerably since then).

So, for a decent injection of cash, ROX acquire a significant share of the company (50% ultimately, subject to the waiver being approved). That dilutes Curren, but the business is then back on track with its valuation rising, so he owns a smaller share of a bigger business. Everybody’s happy, but the plan has a weakness in it - what if there’s a predatory offer from another party before everything is completed (recognising that the regulatory approval is out of their control)? Another bidder could come in and offer, say, 15p per share now and take the whole lot for about £16m. How could the Board not accept that offer? But, with all of the changes announced yesterday, any offer would now be subject to ROX waiving Curren’s irrevocable undertakings, their terms for which might very well be that the fundraise is allowed to complete on the terms agreed, their loans convert and they want a minimum of x per share to agree to the takeover?

Could it simply be that yesterday’s move was to create leverage in any takeover negotiations? It seems to have been done rather hurriedly, so maybe they felt that the current valuation presents a flaw in their plans, so this has been put in place to significantly strengthen the company’s hand in the event that a third party makes an approach?

My understanding is that, technically, nothing happens to shareholders money, unless you choose to sell before the shares are delisted. You will own exactly the same number of shares in the company, but the company will no longer be traded on AIM or any other exchange (for now), so it becomes very difficult to sell your shares. At some point, ROX will want to realise the value of their investment, at which point the company might be sold, or taken public again through an IPO onto one of the stock exchanges.

I was wondering whether right now would be a prime moment for a sweeping hostile takeover, but I don’t know whether Curren’s undertakings would prevent that. He, like all other shareholders, however, will want to see the value from his considerable holding at some point, so in theory shareholders could just follow his lead and wait for the payday at an unspecified future date.

Nice find skittish

The depth of tech skills that it takes to do what Sondrel does are almost beyond comprehension. Billions of transistors on a single chip and SND is “one of a tiny handful of companies able to do this at 3nm”

Interesting change in the wording of the fundraise terms in the RNS. This latest RNS says that the fundraise will be done at ‘not less than’ 10p per share, whereas the previous wording said 10p per share. That suggests that if the share price improves between now and the fundraise, then it might be done at a higher price.

Either way, hopefully we’ll see the sp starting to reflect the true value of the company over the coming weeks.

Interesting comparison cyber. Don’t know much about them - ENSI appear to be a bit less technically capable than SND, but otherwise the businesses look similar based on the numbers in the interim reporting. Similar revenue, although from a quick skim, it looks like ENSI has smaller contracts. Their committed revenue was $75m at the interims, whereas SND have $200m and that’s also likely to be growing faster, given the change in SND’s business model. Sales pipeline of $500m at ENSI - we don’t know what it is at SND, but we know its ’robust’ and of course only a % of that will convert to contracted revenue as neither company will win every contract they bid for. ENSI had a couple of £m in cash at the half year, but more than £3m of debt, so v similar net position to SND, albeit more liquidity.

Almost identical number of shares in issue (before the placing) and yet ENSI SP is 7 times that of SND. I’d say that makes SND look an extremely attractive investment on a like for like basis. Then factor in the liquidity that the placing will provide and you can see why ROX want to invest at these levels.

If Carlsberg did placings……..

This is the best possible outcome for existing shareholders - all new shares, however acquired, to be acquired at 10p per share. Immediate finance needs sorted. Terms of longer term finance needs sorted and additional CLN terms agreed if they need more money in between . All anchored at 10p per share.

This is a material strategic investment in the company at zero discount to the current SP - that shows just how much confidence ROX has in SND. They understand the value of this business - $200m of revenues already contracted and a ‘robust’ sales pipeline.

The regulatory hurdles mentioned in the RNS also confirm how important this industry is to the UK.

Hats off to the Sondrel team - this is how all fundraises should be done.

….plus, how many shorters would be brave enough to short this when they know that the company has a strong forward revenue stream and material new contracts are about to land.

This is a very well constructive deal - the CLN note conversion price is set at todays sp, so any drop into the raise will cost the CLN note provider too, but they will not be the only participant (or even guaranteed to participate), so it’s in their interest for the wider raise to be done on similar terms to the CLN. Clever

I think we’ll get an update by Monday or Tuesday next week latest - the comms from the company has been exemplary, so it don’t think they’ll leave shareholders to speculate in a vacuum like so many companies do.

Tintook, how are you expecting them to do a painful placing to get the short-term finance they need by the end of Feb (which is tomorrow), when they can only issue 10% of the current issued share capital without an EGM (which would take weeks)?

10% equates to 8.75m shares, so let's assume they do that at a huge 35% discount to today's SP of 9p, that would be 5.85p and would raise about £0.5m, which would be helpful, but I suspect they will probably need a few million, not £500k, hence why loan finance looks more likely to me.

Even if you're right and they propose some kind of placing that doubles the shares in issue, diluting everyone by e.g. 50%, the raising of the capital removes all of the negatives and leaves a well financed business with a huge and growing pipeline, with market leading capabilities in a market that's red hot right now. So the finance will take the anchor off the SP and it will head north back towards where it was before, less the dilution. Maybe not all in one go, but the slightest whiff of Neuralink at that point and we're off to the races.

How many start-ups have $200m of contracted future revenues, plus further major deals in the final stages of negotiation that are each worth between $10 and $100m?

…. and of course another major contract win and four new orders from existing customers shows the confidence that those customers have in Sondrel - no company signs a deal of that size without doing their due diligence on the finances.

What a fantastic RNS - really positive and really clear. My reading of the update on the capital position is that most of the requirements can be met from the supplier negotiations, but they will need a small amount in the very short term to see them through.

To point out the obvious, the end of Feb is only two days away, so we will likely know about the terms of the finance within about a week.

They clearly don’t have time to do a placing requiring an EGM or a rights issue by the end of Feb, so while that may form part of a wider package, that means they can only use their existing authority to issue new shares in the immediate term - if that’s the standard 10%, then that’s only about £1m and 10% dilution. That doesn’t sound like quite enough for me, so I think that means that it’s loan finance and not a placing, perhaps with a convertible?

Going to be an interesting week.

The thing is, it will be too late to get in when the finance is sorted - because this is an established business with an already strong revenue pipeline of $170m from existing production contracts. The new US deals they are on the brink of signing will likely push that pipeline towards $250m and could quite easily go much further and double it.

SND is currently valued at a fraction of its future earnings because of the short-term finance issue. The SP was 60p not long ago, which was a fair reflection of that $170m pipeline. But then the working capital got tight and the SP collapsed. Any sniff of the short-term finance issue being sorted and the SP is going to rocket instantly, back to its previous level, less any dilution.

So, worst case, lets say they do a placing at 9.5p (a 25% discount to the current SP) - and let's say they raise £5m, which would be an additional 62.5m shares. That equates to 38% dilution - do the maths, a 38% dilution against the previous SP of 60p puts the SP back up to 37.2p, which is still three times the current SP and that's before any new contracts are factored in. And that's assuming they do a placing - what if they raise via loan finance or an advance from one of their suppliers (including from a new supplier - e.g. an up front payment for reduced long-term, production costs)? In that scenario, there's no dilution, so straight back to 60p, plus any upside from the new contract.

My point is that there could very well be no time to get in when the news lands - if the news resolves the finance position, the re-rate will be instantaneous, as soon as the market opens.

The presentation Sondrel published on Investor Meet Company on 1st Nov 2022 (first presentation following the IPO) is really informative. A couple of nuggets that I took from it:

The transition from being a pure design consultancy to also taking the chips through to prototyping and production has a massive impact on their revenue generation. The design phase is by far the most resource intensive, so that basically constrained them to having only three revenue generating projects at any point in time. The prototype and production phases require a fraction of the resources, but provide ongoing revenues for up to 10 years beyond the design phase. And they are at the point right now where their first projects are transitioning into the prototype and production phases, which means that their resources can then move onto the next opportunities.

The above change in business model has a huge impact on revenue per head - it will move them from around $80,000 per head today towards what their competitors (who already have the wider business model) achieve, which is more like $600,000 per head. That’s a huge shift in the numbers and it will drive exponential growth in revenues (which has been pretty good anyway, at 20% CAGR).

The three main competitors are GUC, Socionext and Alchip, which each have a market cap of between $2Bn and $6Bn and are all based in the far east. Sondrell now has the same core capabilities as all of them, plus some unique capabilities that the others don’t have.

Once the working capital is sorted, this is going to be huge.

Interesting background Skittish. A rights issue on that scale would be a bold move, but there would be sound logic to it. Let’s say they went for £5m at 12p a share. That would mean increasing the shares in issue by about 50%. If that were an ordinary placing, it would reduce the sp by a third, but in Sondrel’s case, it would remove the problem that had caused the drop from 60p, so the bull case would be a return to that level, less a third, so a sp of 40p.

I reckon most people would find that an attractive offer - invest half of what you already have invested and see your whole investment, including the new funds, more than treble. Looking at all of that gain as a return on just the new money, that would be a whopping 8 fold return on the additional investment.

Or, of course, they could raise loan finance, or get help from a strategic supplier in which case the problem is sorted without any dilution