Member Info for Sorcerer

Just for balance, it's worth re-reading what the company said in the RNS issued 31st August (less than six months ago), ahead of the interims in September.

"Sondrel (AIM: SND), the fabless semiconductor business providing turnkey services in the design and delivery of 'application specific integrated circuits' ("ASICs") and 'system on chips' ("SoCs") for leading global technology brands, provides a further update on trading ahead of the publication of the Company's interim results for the six months ended 30 June 2023 ("H1 2023") on 21 September 2023.

During H1 2023 and immediately post period end, the Company continued to deliver live ASIC projects in line with its expectations and, as announced by Sondrel on 3 July 2023, the Company successfully completed the second key milestone in respect of the material turnkey ASIC engagement for a Tier 1 OEM Automotive customer - with corresponding milestone payments received by the Group from the customer. As stated at the time of the Company's IPO, Sondrel expects typical production volumes for each contract to deliver revenue of £10m to £100m per annum and the contract with the Tier 1 OEM Automotive customer could deliver production revenue at the upper end of this range.

As a result, the Company now expects to report H1 2023 unaudited revenues of £9.3m, a 17% increase over the corresponding H1 2022 period (H1 2022: £8.0m) and adjusted EBITDA of £0.4m (H1 2022: £0.1m).

Since the FY22 year end, the Group has been pleased by the continued positive momentum in the US sales pipeline following the Company's ongoing investment in the region, with significant traction in the US market for Sondrel's proposition, the establishment of an office in Santa Clara, California, and the hiring of a team of experienced sales and engineering personnel in the US. The US sales pipeline now includes more than 15 potential customers, with the opportunities now under evaluation representing design and prototype revenues exceeding $100m over 2 years (excluding potential production related revenues). The Company cautions that the opportunities in the US sales pipeline remain uncontracted at this stage.

Furthermore, customer production volume forecasts for the Group's live ASIC projects in Europe have increased by an aggregate of 78%, from US$95m to US$170m. This, together with the progress made in the US, provides the Company with confidence for FY24 and beyond."

Those are big numbers - the European numbers are from LIVE projects, so that is $170m in CONTRACTED production revenues. Plus the US pipeline of opportunities which represents a further $100m over two years, just for the design and prototype phase i.e. it does not include subsequent production revenues. And we know that more than one of these is in the final stage of negotiations.

This is not a typical AIM start-up - the reason they need to raise funds for short-term working capital requirements is to pay for all the work that will gene

I have to say that I though that today's RNS was an example of a company communicating really well. So often in a situation like today the company uses bland words "we know of no reason......." that completely smother any rise in SP, but this RNS was clear, confident and bullish about the company's future. The "About Sondrel" text below the main message in the RNS should also give investors huge confidence in the capabilities of the business and the market's respect for their products.

Just look at their customer base:

"Sondrel designs have enabled products by leading technology brands including Apple (iPhone), Sony (PlayStation), Meta's (Oculus), Samsung, Google and Sony smartphones, JVC (prosumer camcorders), Tesla and Mercedes-Benz cars.

.........and their partners:

Sondrel is well-established, with a 20-year track record of successful delivery, supported by long standing ecosystem partnerships including Arm, TSMC and Samsung. Headquartered in the UK, Sondrel has a global presence with offices in UK, USA, China, India and Morocco.

The thing that people are missing with Sondrell is how just well established they are in their market. Even after today's meteoric rise, they are trading with a market cap well under 1 year's revenue and they have virtually no borrowing. The company seem very bullish about their current contract negotiations (plural), which are in the final stages of negotiation, so the next news could literally drop anytime - and who knows how the next deal will be structured?

Today really could be just the start of an exciting few weeks.

This was a key statement from the RNS on 5th Feb - final negotiations……….

The company have NOT said that they need a placing, they have said that they will need a permanent solution to their working capital requirements. We don’t yet know what form that will take, but it could be through a variety of means, including loan finance, up front payment from new orders, sale of assets or placing new shares (including to a strategic investor).

Very importantly, any capital raising is purely needed for short-term working capital requirements (i.e. likely a few £million at most), it is not needed to provide development finance, like so many non-revenue generating AIM companies need when they raise money.

SND are very well established with highly sought after niche expertise in a huge market. They have solid revenues and a strong (growing) pipeline. Whatever route they choose, it will likely be very positive for the sp, which is heavily discounted because of the uncertainty. This was trading above 60p six months ago, so major upside once the short term finance is sorted.

The following paragraph from the year end trading update is all that really matter here:

Destiny's priority remains to realise the maximum value for our XF-73 Nasal asset, given the substantial market potential of this product for Destiny Pharma and the significant potential benefits it presents for both patients and health systems. The Company is evaluating all options to achieve this, including continuing discussions with a number of potential partners, with a view to delivering the best deal to maximise shareholder value. We will provide a further update in due course.

……and when they say substantial market opportunity, they mean $2Bn annual opportunity, just for this product. The other products will likely be just as exciting in time, but are currently rather less advanced compared to XF-73, which appears to put Destiny right at the centre of a paradigm shift in the fight against post-operative infections, including the resistant strains that have become one of the most significant threats to modern medicine.

Bacterial resistance poses an existential threat to all surgical procedures and in XF-73 Destiny appears to have something that the world has been seeking for three decades. All the rest is largely noise at this point

The wording is interesting - at face value this is simply a reassuring ‘holding’ message - nothing has changed and discussions ongoing.

However, the repeated reference to maximising shareholder value and also to evaluating all options, including ongoing discussions with potential partners, and the strong funding position suggests to me that this message is primarily directed at those interested parties i.e. we have an incredible opportunity here and we are well funded to deliver it - if you’re interested, you need to be making us a serious offer soon, or we’ll take the opportunity forward with someone else.

Agree it’s not a huge order, but the impressive thing is the acceleration in the rate of rollout. The first 10,000 took 14 months; the next 10,000 will take 4 months, so they are planning to deploy at 3 to 4 times the rate achieved to date. At that rate, thats’s 30,000 units annually (and probably more, as likely to accelerate further), which adds significantly to the recurring revenue stream.

The talk of preparations for the two week dosing regimen sparked a germ of realisation in me that I hadn't thought about previously, but which I think may explain why the next phase of the trial is so important.

I had (naively) thought that it was simply about navigating a course to finding the recommended dose for phase 2 as quickly as possible, within study parameters that would be likely to also give indications of even greater efficacy (because it is widely known that more frequent dosing leads to improved efficacy). However, I asked myself why more frequent dosing would be more efficacious and whether there might be more to it than simply being able to dose more chemo over the same timescale - and I think there is, much more to it.

Why? Because the third week in the current three week regimen must be the period when the patient is recovering the most from the toxicity of the dose they received two weeks earlier - it's effectively a week long detox period where the patient has the least Dox in them and they can build up their strength for the next round. But, of course, that must also mean that it's a period when the tumour will likely be growing, rather than shrinking. Put simply, it's literally two steps forward and then one step back.

Compare that with the two weekly dosing regimen, which is two steps forward and then two steps forward again, and again, and again. The compound effect of that on the relative mass of the tumour at the end of the 16 weeks must be huge, as it never gets a chance to grow, you just hit it again and again and again. In my simple analogy, after six three-week cycles, you would have taken twelve steps forward and six back (so six steps forward in total). With a two week cycle, you would take 16 or 18 steps forward and none back over the same timeframe.

Of course, in the real world, it's much more complicated than this, but the logic feels right - in fact, I suspect that the effects will be compound rather than simply additive, because it's all about % growth and shrinkage in tumour, so the first dose reduces the tumour size by x% and the second dose a further x% etc. Do the maths on that for two weeks of shrinkage followed by a week of growth versus continued shrinkage every two weeks (with no growth in between) and after 16 weeks the results are an order of magnitude apart. AND with AVA6000, you can keep going after the first 16 weeks for another 16 weeks, and then another and then another.

Does anyone know enough about the science to confirm or correct the above hypothesis?

Notwithstanding the somewhat muted response to the data so far (that’s often been the case with Avacta BTW - especially on days where AS is presenting later in the day), the data is incredibly exciting.

I see three distinct value drivers for Avacta that will drive value for shareholders in both the near and medium term:

1. Even with no greater efficacy than straight Dox, it’s clear that precision has the potential to completely displace all Dox (and other chemotherapy agents) where heightened FAP is a feature of the tumour. Chemo without side effects is a massive opportunity in its own right, but is being completely overlooked in the hunger for efficacy signals (which we are also seeing, but which represent a further opportunity). We don’t need greater efficacy for precision to be a game changer for chemo - this opportunity is now proven and will be huge.

2. The exquisite targeting of the prodrugs against the tumour and not healthy tissue (at ratios of 100:1 at the higher concentration levels) open up a vastly broader range of treatment regimens (dose, frequency and overall exposure) which we have every reason to now believe will lead to a huge shift in clinical efficacy, once we find the right mix for each tumour type. This is huge too and will effectively act as a multiplier of the value from 1 above.

3. The opportunity to use entirely novel super-toxins that you wouldn’t put anywhere near a human being at the moment because the systemic exposure would kill them. This has been completely overlooked by the market to date, but I suspect this is the area where we might actually see precision offering a cure for cancer - a warhead so powerful that it completely destroys all cancer cells, but it’s just been waiting for a safe mechanism of delivery. Well the wait is categorically over now and I think, amongst commercial deals for progressing 1 and 2 above, we will see an early deal looking to trial something in this category, which is hugely exciting.

Regardless of what the sp is doing, Avacta’s time is here and the world will understand what they have as soon as the deals start coming in, which I think will be very soon indeed.

Never seen an RNS like this before - reference to placing lacks clarity - it looks like an off market transfer between major holders, with no new shares issued and therefore no dilution, but the use of the word placing makes it sound like something different. Surely if new shares had been issued , they would also have to update the TVR etc.?

I can see why a major holder selling all their shares at a significant discount might spook the market, but there could be any number of technical reasons why they have done this. Will be interesting to see who has bought the shares and whether there are other pieces of the jigsaw that emerge in the coming days.

I agree that we remain open to a better offer until the formal vote goes through. In practical terms, however, if and when that comes, the earlier it happens the better. Many years ago, I held shares in Raymarine - they were in a similar position to YGEN and subject to a low takeover offer as part of a pre-pack administration deal. A better offer emerged, but the BOD then hurriedly took the business into the pre-pack administration, effectively blocking the higher offer (which from memory was about 50% higher). The explanation they gave was that there was no guarantee that the higher offer could be completed in time, therefore it was in everybody's interests to simply proceed with the original offer. The BOD's actions created a stink amongst shareholders (and the new suitor), who lost out on a significantly better deal, but there was nothing the shareholders could do, as the BODs judgement prevailed. I suspect the same would happen here if another offer surfaced late on in the proceedings - the BOD would simply say "a bird in the hand" etc.

There's also the second possibility that a group of the largest YGEN shareholders are able to demonstrate that they hold more than 25% of the company and they are open to accepting an offer, but it needs to be higher than 0.52p /share. In that scenario, if the group said they'd fully commit to a better offer at e.g. 1.5p / share (maybe making irrevocable undertakings), would NCYT want to take the risk of taking 0.52p to the vote and possibly missing out, or would they stump up the money to secure the deal, on the basis that even an extra 1p on the deal is only about a year's worth of YGEN's likely revenues?

I suspect that YGEN's revenues are now growing very nicely indeed, so I'm sure that NCYT wouldn't want anything to delay the deal past the date of the interims, when the BOD will be obliged to set that out for the whole market to see. The clock's ticking for NCYT as well as YGEN.

I wasn't entirely sure of how irrevocable the BOD's undertakings were, but having read the full RNS now, it's all pretty clear in Appendix 3 - the undertakings can only be waived in specific circumstances, which include a competing offer being made that values Yourgene at a value which is at least 10% more than the current offer. In those circumstances, the undertakings lapse (allowing the Board to make alternative undertakings to a new suitor) unless NVCT itself makes a further (better) offer within 3 days of the counter-bid, in which case the undertakings remain with NCYT.

So, the key thing is whether the brokers declaring positions are acquiring on behalf of NCYT, or on behalf of someone else. I suspect it's NCYT, but if there was ever an under-valued business that deserved a bidding war, then this is probably it - time will tell.

The real value of YGEN will be revealed over the coming days as the market digests the news. The prime indicator will be the increase in the value of NCYT. If the deal was fair value, the SP wouldn’t change materially, as they’re just replacing cash with other assets. If the sp rises materially, then that’s an indicator that the market is ascribing a higher value to the acquisition than is being paid - it essentially removes the risk discount we’ve been hammered with, as funding no longer a problem for the joint entity.

Whenever break even is currently forecast, it’s based on conservative growth, hence the reason that any increase in revenues (that exceeds market expectations) should be reported as soon as it’s known and not deferred until the half year trading update.

Might we get some kind of update next week? All we need to know is that revenues continue to grow - even a whiff that the business is now close to running at break even would massively change sentiment here.

I recall there being quite a push from Yourgene last year on the advantages of EDTA tubes over glass Streck BCTs - and that the cost advantage that gave was a material commercial differentiator for the LightBench platform (over and above its superior performance in clinical workflows).

If they have been trying to drive this tech forward within the constraints of an 8hr sample window and that has now effectively been extended to 7 days by today’s news, then that sounds like the removal of a very material commercial constraint.

From the YGEN website: “The LightBench® Detect also leverages patent-pending size-selection technology from Yourgene Health, making it the only instrument that enables laboratories to consider the use of EDTA blood collection tubes (BCTs) instead of Streck BCTs. This reduces the laboratory’s expense on blood collection tubes.”

So it’s a genuine USP that no other platform offers - is this the start of the Ranger revolution?

I've been running a spreadsheet for quite a few years with Yourgene's numbers in it and two of the calculations I include in that are the % growth in H2 revenues versus H1 revenues and the % growth in H1 revenues versus the prior year's H2 revenues. The numbers on both these calculations have been messed up a bit by the sudden growth from Covid and then the equally sudden drop that led to the fundraise, but if I exclude those years from the calculation, I think it still gives me a reasonably good model for plotting the potential trajectory of future revenues.

Historically, the average growth in H2 versus H1 revenues is 27% and the average growth in H1 revenues versus the prior year's H2 revenues is 42%.

What really piqued my interest when I updated the numbers with the latest results is that the H2 versus H1 increase last year was 42%, which is much higher than the long term average of 27% (and coincidentally the same as the H1 versus prior H2 average). Even more interesting is the number I then get for H1 and H2 next year, if I apply the historic averages (which, based on the model, would give H1 numbers based on an uplift of 42% on last year's H2 numbers and H2 numbers based on a 27% uplift to the estimated H1 numbers).

The numbers that my calculation give me are £15.8m for H1 and £20.4m for H2, which equates to total revenues of about £36m next year. That may seem fanciful, but it's just continuing the trend that has clearly now been re-established - in fact, the current growth trend appears to be even stronger than what it has been historically, which would make sense given how badly the revenues were knocked back during Covid and that Yourgene's sales and processing capacity continued to expand during the Covid years, so one could argue it might go even further.

Of course, the BOD are the only ones who really know what the pipeline looks like, but something gave them the confidence to invest huge amounts of their own money in the latest fund-raise (in LR's case eclipsing what he has put in previously). I'm convinced that they feel their money is safe and if the above is anything like accurate, then it won't be long before they start to reset market expectations for the current year.

I suspect the cash burn is rather slower than it might appear, as I recall that when the fundraise was undertaken, there were director loans alongside it, so they clearly ran the tank dry, so some of the cash raise will have effectively gone on plugging a historic gap.

My take on the results is that they are solid and encouraging - revenues growing and costs falling is all we need. I always felt they wouldn’t announce any material news before these results, as they needed a lean news period to give some clear blue water following the destructive dilution, which was only three months ago. Otherwise, how could they justify what they did in then event of any regulatory scrutiny?

I think there is now a line in the sand and we will see an uptick in RNS’s from now on. I also wouldn’t be surprised if the divestment news comes very soon - for all we know it could be neatly tied up already and just waiting to get the prelims out of the way first.

Good reminder Brighty - and we are trading at a sp which represents a market cap of less than half annual revenues. The slightest sniff of positive numbers in the update should send this materially higher. MCap of £8m is plainly ridiculous for a business that was near £150m in the recent past as has grown it’s reach and core business revenue potential since that time. Significant re-rate long overdue.

Truant - "a pupil who stays away from school without leave or explanation"

Maybe if you'd gone to school, you'd have some idea why 'hilarious' is the only word in your post that hits the mark. The rest is breathtakingly stupid. Most people would be embarrassed to expose that level of ignorance on a public forum, whatever their motive.